Self-Directing How To: Leveraging IRAs

September 30, 2014

Article by NuView President, Glen Mather:

We’re often asked during our seminars and continuing education classes on self-directed IRAs whether investors can use their IRA to make a down-payment on investment property, and the short answer is yes. But there are two rules to be aware of when leveraging IRAs:

First, the IRA must purchase the entire property, not just provide the down-payment. The property is titled in the name of the IRA (NuViewIRA, FBO (client’s name) IRA). The mortgage then would also be issued in the name of the IRA.

Second, the loan must be non-recourse, which means that in the case of non-payment the lender is limited to only taking the asset secured in the loan that is owned by the IRA. The IRS actually prohibits a disqualified party of your IRA, which includes yourself, to provide credit to your IRA (IRS Section 4975).

There are considerable benefits to leveraging IRAs. It certainly could provide a way for the IRA holder to purchase higher-valued property than the balance their IRA account may allow. While partnering can provide additional funds, leveraging IRAs allows you to retain all of the net gains rather than just a partnered portion. It may also permit several properties to be purchased instead of just one, increasing diversification inside the IRA.

So, is it even possible to get a non-recourse loan? The best source may actually be the seller of the property, although that would normally require that the property has sufficient equity in order for the seller to offer such terms to your IRA. There also are several banks that have created a special loan program for IRAs that clients often find attractive.

Lenders to IRAs normally require not only an appraisal, but also an assessment as to the likely cash flow of the property, including rental history and projections. After all, the lender to an IRA cannot assume that the IRA holder can or will make future contributions to his account. At NuView IRA, we can set up automated payments to the lender, ensuring that available funds are transferred according to the agreed-to terms of the loan.

Before you get started with leveraging IRAs, be sure to seek guidance about potential taxes your IRA could incur, Unrelated Debt Financed Income, which takes effect when an IRA makes a profit of more than $1000 per year from the leveraged portion of the rental property. Also, state laws may differ on the exact protection for the borrower of the loan.

Our transaction experts at NuView to answer any questions on the process of leveraging IRAs, and, as always, tax professionals and advisors can help with specific investment details you wish to make within your IRA.

A Walk in the Woods – Investing in Timberland

September 25, 2014

Guest article by Tom Brickman:

With the stock market at all-time highs, many have forgotten that six years ago everyone’s stock portfolio lost a gut-wrenching 40 percent in eight months, and with money market rates around 0.4 percent, cash is not keeping pace with inflation. High volatility with a low yield is an unpleasant combination for anyone, and while alternatives seem scarce, investing in timberland tends to satisfy many security needs.

People are beginning to turn to timberland investments, in fact in America there are 23 million private timberland owners. Prices for stocks and bonds can go up and down dramatically over short periods of time, sometimes as short as a single day, but timberland values tend not to fluctuate. Over 50 percent of the return from timberland comes from biological growth – trees get bigger at a steady rate independent of market factors. Diversifying a portfolio by investing in timberland can reduce value swings.

What are the different types of timberland?

In the south there are a few different types of timberland: land that will grow pine trees (dryer ground), land that will only grow hardwood trees (wetter ground), and farm land.

The kind of land you buy depends on the mix of motivations you have for buying it. Those motivated purely by financial benefit will seek investment-grade pine properties. In the south, this is land that has been planted with genetically improved loblolly pine. Those more interested in hunting, which means less return, will seek properties that have more hardwood land, perhaps with a lake or river frontage too. Investors motivated by conservation may seek longleaf pine or hardwood land along major rivers. Investors motivated by a farming lifestyle or by crop and livestock markets will seek land suitable for cultivation or pasture. Returns from farmland tend to be more volatile than returns from timberland due to government involvement in the markets. Many investors have a mix of motivations and accordingly seek a mix of land types.

How do you go about investing in timberland?

In general, there are two ways to go about investing in timberland. One way is direct private investment where the investor owns the asset. The other is indirect investment where you purchase stock in a public company that owns the asset. The way you invest depends on your motivations.

Direct Investment

Direct investment gives the investor more control over the decision of when to sell timber. This can have a very beneficial impact on returns. You can purchase land to meet a variety of motivations. Disadvantages include the task of finding assets to buy, discerning fair value, finding asset managers, and finding buyers when you are ready to sell (lack of liquidity).

A key issue with direct investment (mostly affecting smaller non-institutional investors) is that markets for privately owned rural land are notoriously difficult. For example, finding assets to buy is difficult because there is no central clearing house of properties available for purchase and the for-sale-by-owner market is huge (our experience is  up to 50 percent of private land sellers do not use an agent to find a buyer). Also, discerning fair pricing requires expertise in appraising land and standing timber. Consequently, most investors engage professionals to assist with finding, buying, managing and selling land.

Indirect Investment

Publicly traded forest products companies seek to maximize financial return. Buyers with this motivation find a good fit here. Advantages to indirect investment are that it simplifies the task of finding, buying, managing and selling timberland assets. The price is published every day so there is low price uncertainty. And, the companies have professionals to manage the assets (selling timber, planting trees, fixing roads, paying property taxes, etc.). A disadvantage to investing in a public company is that quarterly demand for dividends, which affects share price, forces these companies to sell timber even in poor markets.

Institutional investors (pension funds, endowments, sovereign wealth, etc.) and high net worth individuals often address these issues by investing through Timberland Investment Management Organizations (TIMO’s). These are private companies that specialize in finding, buying, selling and managing timberland assets. Although most have financial return as their mission, some specialize in conservation timberland. The best TIMO’s offer geographic diversity (US & global) and have decades of experience identifying deal flow, managing the purchase process, managing the asset on a day-to-day basis, and finding buyers when it’s time to sell.

People who don’t meet the minimum investment threshold for a TIMO (most investors) can get professional assistance from an enormous network of rural land and forestry professionals. Many of these are small, local companies or individuals with deep knowledge of the asset and long experience with local land and standing timber markets.

Is investing in timberland right for you?

This is a question only you can answer. The purpose of this article is to give you a starting spot for further investigation. Here are some thoughts to consider:

  1. Get professional assistance for direct investment. A key issue is that the hardest mistake to overcome is paying too much. The saying is you make your money the day you buy it.
  2. A diverse portfolio is your best protection against loss of value. So only add land if you are looking for diversity.
  3. Direct investment in land requires patient money. Getting in and out of the asset takes time. So only use funds you can afford to invest for 10 years or more. Using your self-directed IRA to buy land is allowed and is the perfect kind of money to use.
  4. Land does not service debt well. Be careful that your reach does not exceed your grasp.

Learn More:

  1. Data on ownership & financial performance of land:
    1. The National Council of Real Estate Investment Fiduciaries (NCREIF):
    2. The Forest Research Group
    3. U. S. Forest Service Resource Bulletin WO-1
    4. Family Forest Owners: An In-depth Profile. By The Sustaining Family Forest Initiative
  2. Direct investment & management professional
    1. All individuals – farm and timber land:
    2. High Net Worth Individuals and Institutions:
  3. Timberland investment & management professionals
    1. Resource Management Service
    2. Campbell Global
    3. Forest Investment Associates
    4. The Hancock Timber Resource Group
  4. Farmland investment & management professionals
    1. Hancock Agricultural Investment Group
    2. American Society of Farm Managers and Rural Appraisers
    3. UBS – Agrivest
    4. TIAA-CREF Ag Investments

 

Located in Birmingham, Alabama, Tom Brickman has 37 years of experience in timberland investment and management businesses across the United States and Central America. He is a Registered Forester, Certified General Appraiser and Real Estate Broker, and helps people buy, sell, and care for rural land. Tom can be contacted via email at tbrick@CyprusPartners.com or by phone at 205-936-2160, and for more information on buying rural land in Alabama, you can visit Tom’s website at www.CyprusPartners.com.

Investing in Growing Companies

September 4, 2014

Guest article by Evan Greenberg:

Over the past three decades, companies like Microsoft, Apple, Google, and Facebook have emerged, not to mention other powerhouses like Chipotle and Under Armour. They have replaced Chrysler, Woolworth’s, Data General, Digital Equipment, and many others in our dynamic economy. Many of these success stories are examples of why an alternative investment platform for accredited investors is important, as many of these companies were private investments before their IPOs, which came much later in their growth cycles. For example, one of my favorite concepts, Stratasys, a leader in 3D printing, has gone up 100-fold since 2002.

Typically, the primary way people were investing in growing companies was either through a direct investment or a venture capital fund, which could only be done inside of an IRA through an administrator like NuView. As defined by The Motley Fool, a hedge fund is described as “a pool of investment capital that a manager invests on shareholders’ behalf.” The crucial difference between a hedge fund and your run-of-the-mill mutual fund is the complete discretion it gives the fund manager to invest where and how he or she chooses. This allows hedge funds to hold any and all investment types, including alternative assets

Our economy has become more efficient, even in the last 15 years, by utilizing capital investors to quickly monetize and add value to emerging companies. Book value is no longer as important as balance sheet cash.

If I said to you that I expected mid-to-high single-digit returns for the next 10-15 years, then you would say that is a plausible idea. However, if I said that I expected the Dow Jones Industrial Average to hit 50,000 and the S&P 500 to hit 5,000 in the same time frame, you would probably call me crazy. Believe it or not, I forecast that both of those scenarios will occur before 2030.

While all good things come to an end, I’m still predicting this secular bull market will last for a long time. Dow 50,000 sounds like a spectacular number, but it is slightly above traditional market returns after 13 years of sideways action. This may not be a roaring bull to remember, but it won’t be one to forget, either.

 

Evan Greenberg is the Founder and Portfolio Manager for the LegendCap Opportunity Fund, which is an approved hedge fund on NuView’s platform that makes investments in emerging growth companies and allocates up to 20 percent of its assets to alternative investments such as private placements. Evan broadcasts a financial radio show in Phoenix and can be contacted at evan@legendcapfunds.com or (516) 662-0303.

Private Lending Basics – An Introduction

August 13, 2014

Guest article by Augie Byllott:

In the world of investment real estate there are myriad ways to buy, sell and finance real estate. The following information is about a particular segment of the business, private lending and most specifically targeted toward the financing of non-owner occupied real estate. With the enactment of the Wall street Reform Act more commonly known by the name of its authors, Dodd-Frank, lending to owner occupants has become a potentially hazardous business fraught with, as of this writing, many unknowns that could negatively impact small lenders.

For many years, private individuals seeking better returns have provided the fuel that keeps investment real estate viable for many small developers, builders and those who buy, fix and sell foreclosures, short sales, probate properties and junkers that are not considered financeable by banks. Their funds have facilitated the acquisition and renovation of literally millions of single family homes, helped small builders to create new housing stock and kept many trades people employed. In a nutshell, private money lenders help the economy while earning above market returns on their capital.

During my first 15 years in the banking industry I had never even heard the term private lending let alone knew what it was, then, I was approached by a talented young builder who had acquired enough property to build 15 houses but needed capital. His plan was to build and sell one house at a time and use the proceeds to repay the loan plus interest that was at least 5 percent more than I could earn at my bank. After reviewing his plan, some of his previous work and the blueprints of what he was going to build I developed a comfort level.

We documented the arrangement and he was off and running. I am happy to report that a formerly vacant piece of dirt now has 15 families living in homes each worth over $500,000 today! That was about 20 years ago. Oh, I more than doubled my original investment in a few short years so I was pretty happy too!

Private individuals seeking to avoid the volatility of the stock and bond markets may find the safe haven they are looking for in the world of private lending. This is sometimes called hard money lending though the two can be somewhat different. If you are prudent and diligent, you can earn solid returns while minimizing risks as a private lender.

Like any business venture private lending requires specialized knowledge; higher and more predictable returns can result when investing in private money loans but it also requires more effort and patience than that needed to push a button and execute a buy or sell order for a stock.

WHAT’S INVOLVED?

At its core, investing in private loans is a lot like investing in a bond that pays a fixed rate of return and pays off at maturity. If you make a loan to a borrower for $100,000 at 8% interest, and require interest-only payments, you’ll earn $8,000 income each year. And when the borrower fulfills their obligation, the loan will pay off at or before maturity and the original principal will be returned.

Liquidity – Do not consider becoming a private lender if you need the money before the maturity date. Even though most loans payoff, many do not pay off as expected. You can sometimes sell loans using an online loan exchange, or broker them to another private investor via a hard money loan broker. But even performing private money loans are typically sold at a discount. If you want to sell notes, even if they are performing, be prepared to take a little haircut.

Collateral Valuation – The underlying collateral for a private loan is very important to the overall security of the transaction. Lenders should carefully evaluate the value of the collateral and use several sources to confirm their valuation. A common practice among private lenders is to “drive the comps yourself.” That means do not just look at photos on an appraisal and assume you have an accurate value.

With the appraisal in hand get in your car and drive to the subject property as well as each comparable property and confirm for yourself that the property value is realistic. Consider multiple sources of value. In addition to an appraisal and driving the comps yourself, consider using an automated valuation model or a Broker Price Opinion (BPO) as well. Some properties are easier to comp than others.

Advances On occasion loans require the investor/lender advance additional funds for a variety of reasons. Advances may be required to cure delinquent property taxes, cure a senior lien position, hire an attorney, pay to defend bankruptcy claims, or even remodel a property if a foreclosure takes place.

Title Be sure your borrower obtains a lender’s title policy that will insure your lien position as a lender and offers fraud protection against forgery. Title insurance is not like homeowners insurance. If you suffer a loss with your homeowner policy, you submit the claim and get a quick reimbursement. Title insurance is an indemnity policy and as such you are reimbursed for a proven loss only and not the potential for a loss. The result may be that even though you will eventually lose money due to a title issue, you may not receive reimbursement for months, or even years later.

Borrower Credit – Carefully reviewing the borrower’s credit application and capacity to make monthly payments is the key to a successful loan investment. Private money loans are often made based on the collateral, but the best loans are those that give equal weight to the borrower’s past credit track record and capacity to make payments and repay the loan when a balloon payment is due, or when the loan matures.

Private Lender Insurance You will need to make sure the property owner has appropriate hazard and liability insurance in the amounts you desire as an investor. The insurance company must also be notified to include the private lender as an additional insured on the policy so in the event of loss, the check is sent to you first.

Documentation Documenting the loan, creating the appropriate security documents and disclosures to the borrower can be complicated and time consuming. There are a myriad of state and federal regulations to be followed, and a violation of these regulations could invalidate the loan and result in lost interest and/or fees. Consulting an attorney or mortgage professional can help you do things right.

SERVICING YOUR LOAN

Once a loan has been originated, payments need to be collected from the borrower, and various tax, regulatory and informational statements need to be sent regularly to the borrower. Lenders can do this themselves or hire a loan servicer to collect payments and provide reporting for a fee.

PRIVATE MONEY AND FORECLOSURE

If a borrower fails to pay as agreed, lenders must be prepared to foreclose on their collateral. This can be an arduous and time-consuming process that requires a significant amount of expertise and expense.

There are also alternatives to a foreclosure; among then are for the lender to accept a deed-in-lieu of foreclosure or a short sale of the property whereby the lender agreed to allow the property to be sold for less than the loan balance.

GETTING STARTED

As you can see, investing in loans is not as easy as it may seem on the surface and certainly more involved than buying a publicly traded security like a stock share or a bond. So, how do you invest in private money loans? How do you get started? How do you take the plunge?

The answer is: very carefully. Learning the private money lending business takes time. But once you understand the nuances and study the business, it can provide returns substantially greater than other investment choices.

There are professionals in the business of helping investors make loan investments. In the past, they have been referred to as hard money lenders, loan brokers, or mortgage loan originators. These are professional business people who are skilled and in most cased licensed by their state at originating private money and conventional loans.

The best part about using one of these sources of assistance to invest in loans is that the fees are typically paid by the borrower and therefore you get the expertise without paying for it directly. You pay for it because of the additional fees you would likely have collected had you originated the loan yourself.

For example, if the borrower was willing to pay 3 points up front for a $300,000 construction loan, you may earn the entire $9,000 fee up front as the sole investor and originator. If you use a loan originator instead, you may still get a piece of that commission; typically 1 point they keep the remainder.

If you’re just starting out, the services of a loan originator can be invaluable and they will help walk you through the transaction. Many investors who are not real estate professionals maintain life-long relationships with their loan originators just as a corporate executive might maintain a relationship with an investment advisor.

 

Augie Byllott is a full time real estate investor who specializes in all facets of residential real estate investing.  He is also a nationally recognized Author, Trainer, Coach and Speaker who teaches creative real estate investing to people from all walks of life.  Augie believes in creating win-win scenarios through the use of Intellectual Capital and Transaction Engineering. Visit him at www.PACTProsperity.com

 

Engaging Client Networking Opportunties

August 7, 2014

Thanks to all our clients who turned out to our cookout this past weekend on August 3rd, despite some foreboding weather. While our event did start with a bit of rain, in 15 minutes it was all clear and the temperature was much cooler after the sprinkle.

We had a great time catching up with our clients and getting to hear about their newest endeavors, and hopefully they were able to connect with a few like-minded individuals over burgers and live music from Keith Eaton.

collage-01Every quarter we strive to bring together client networking opportunities, from more formal dinners after work with engaging speakers to casual weekend networking cookouts. Not only does it give clients a chance to get together with other self-directed investors, but it gives us the chance to actually meet the people behind the paperwork we process.

The rain might have deterred some from joining the recent festivities, but don’t worry there is an even bigger opportunity on the horizon – our second annual alternative investment symposium, Planning for Prosperity. Last year, we brought in a mix of national speakers and local experts to discuss different aspects of alternative investing including syndication, hard money loans, tax deed investing, and more. With more than 125 attendees all asking for more, we knew we had to do it again.

For 2014, we’re flying in the hosts of The Real Estate Guys radio show, Robert Helms and Russell Gray, who have been offering real estate investment advice on air since ’97 with a downloadable podcast garnering tens of thousands of listens. Joining these great guys is the self-proclaimed Pitbull of hard money lending, Leonard Rosen, who was so well-received last year we invited him back again. We are also bringing in experts on angel investing, checkbook control IRAs, and more.

This is a jam-packed, day-long seminar you won’t want to miss, so remember to sign-up today as early bird pricing will only be in effect until Sept. 15th (prices will increase from $99 to $129 on 9/15). All proceeds from P4P will be donated to the Hero Games charity event, which is fundraising for the Wheelchair Foundation.

Serving at Ronald McDonald House of Central Florida

July 2, 2014

A few years ago, NuView employees and management sat down to determine what they felt were the most important tenets of the company, its core values. Included among those values was a desire to constantly be serving others. To this end, NuView challenged its staff to find unique ways to get involved in the community both locally and abroad.

In the second quarter of 2014, NuView was able to secure a sponsorship spot at the Ronald McDonald House. With two houses in central Florida, the charity aims to be a home away from home for families with extremely ill children staying for extended periods in nearby hospitals.

The Ronald McDonald House invites volunteers to help supply, cook, and serve lunches and dinners for the families staying on site, and, after checking the company calendar, NuView signed up to provide both a lunch and a dinner on a recent Saturday.

Group at Ronald McDonald House

For lunch, our volunteers chose a theme, “Classic American,” and decked out the dining hall with red, white, and blue. From burgers hot off the grill to chocolate chip cookies fresh from the oven, the NuView team took it upon themselves to provide not just another meal, but an experience that might help the families forget for a minute the difficulties they have lying ahead.

SHK_7490

At dinner, NuView transformed the dining hall again, but this time with a south of the border flavor – serving up DIY tacos and homemade churros. The best part of the dinner was the kids. NuView made a special announcement inviting all the kids back to the dining hall for a whack a colorful donkey pinata. When the last kid took his final swing, the pinata burst, candy went flying everywhere and with it the kids collapsed to the floor to chase down every last piece. The laughter and smiles through the fake moustaches made the volunteer efforts worth every second.

Is Venture Investing Right for You?

July 1, 2014

Guest article by Blaire Martin:

Investors around the world are allocating a percent of their assets into early-stage companies in order to access opportunities for exceptional returns. “Angel investing is a legitimate part of an alternative asset class investment portfolio,” says David S. Rose, founder and chairman emeritus of New York Angels, in his new book, Angel Investing: The Gust Guide to Making Money and Having Fun Investing in Startups. “A rational person can be an investor and not a gambler.” In the book, Rose explains that more people can and should become angel investors and that a few big wins make up for all the losses.

study by Wiltbank and Boeker estimates that the average return on venture investing by sophisticated angel groups is 27% IRR or 2.6 times the investment in about 3.5 years. Research shows that investing in multiple seed and startup companies is a key angel strategy. Many sources agree that a portfolio of 10-12 angel deals is adequate diversification to assure a reasonable ROI and that 6 or less angel investments is too risky. Investors can create a portfolio of investments by picking deals in FAN’s pipeline or by venture investing into a cross-collateralized fund.

Joining a sophisticated angel group is very helpful for investors interested in breaking into angel investing. Benefits often include: access to quality deal flow, collaborating with diverse investors and subject-matter experts, and assistance with due diligence, investment paperwork, and post-investment monitoring and support. Angel groups also encourage venture investing best practices and promote angel education from sources like the Angel Capital Association and the Angel Resource Institute.

There are many reasons that accredited investors write checks for angel investments. The possibility of getting in early with a company like WhatsApp excites investors looking for higher returns than possible with more traditional investments. Many investors also want to be significant in the lives of entrepreneurs with high potential ventures; angel investing is a way to incite opportunities with mentorship, networking connections, and capital. It may feel like philanthropy, but when done systematically through a sophisticated channel, it is a valid way to invest while giving back in your community, with an added benefit of upside potential.

The Florida Angel Nexus (FAN) is a statewide initiative to unite Florida’s investment community. FAN’s mission is to offer a disciplined and rewarding investment approach for Florida’s accredited investors. Investors are joining existing and newly formed angel chapters and funds across the state. These investors are exposed to exciting new technologies and startups; they enjoy meeting to discuss these investment opportunities and evolving markets. Membership is very diverse, from realtors to serial entrepreneurs, doctors to accountants. All accredited investors are welcome.

The UCF Center for Innovation and Entrepreneurship provided the leadership and resources to research and launch FAN. Key supporters include: UCF, Florida High Tech Corridor, Florida Institute of Commercialization of Public Research, Gainesville Chamber of Commerce, Gray Robinson, and BioFlorida.

Blaire is the founder of Florida Angel Nexus. Interested parties can contact FAN for more information at www.FloridaAngelNexus.com or blaire@FloridaAngelNexus.com.

10 Tips for Successful Real Estate Investing

May 30, 2014

Guest article by Marco Santarelli:

I came up with the following rules of successful real estate investing over my many years of successes and failures. These are the same rules I follow today and share with our clients at Norada Real Estate Investments.

1. Educate Yourself

Knowledge is the new currency. Without it you are doomed to follow other people’s advice without knowing if it’s good or bad. Knowledge will also help take you from being a “good” investor to becoming a great investor, and that knowledge will help provide a passive stream of income for you or your family.

2. Set Investment Goals

A goal is different from a wish; you may wish to be rich, but that doesn’t mean you’ve ever taken steps to make your wish come true.

Setting clear and specific investment goals becomes your road map and action plan to becoming financially independent. You are statistically far more likely to achieve financial independence by writing down specific and detailed goals than not doing anything at all.

Your goals can include the number of properties you need to acquire each year, the annual cash-flow they generate, the type of property, and the location of each. You may also want to set parameters on the rates of return required.

3. Never Speculate

Always invest with a long-term perspective in mind. Never speculate on quick short-term gains in appreciation, even in a heated market experiencing double-digit gains. You never know when a market will peak and it’s usually 6 to 9 months after the fact when you find out. Don’t chase after appreciation. Only invest in prudent value plays where the numbers make sense from the beginning.

4. Invest for Cash-Flow

With few rare exceptions, always buy investment property with a positive cash-flow. The higher, the better. Your cash-on-cash return is directly related to the before-tax cash-flow from your property.

Cash-flow is the “glue” that keeps your investment together. Your equity will grow over time (through appreciation and loan amortization), while the cash-flow covers the operating expenses and debt service on your property.

5. Be Market Agnostic

The United States is a very large country made up of hundreds of local real estate markets. Each market moves up and down independently of one another due to many local factors. As such, you should recognize that there are times when it makes sense to invest in a particular market, and times when it does not. Only invest in markets when it makes sense to do so, not because you live there or you bought property there before. There’s an element of timing and you don’t want to buck the trend.

6. Take a Top-Down Approach

Always start by selecting the best markets that align with your investment goals. Most investors start by analyzing properties with little to no regard of its location. This can be a big mistake if you don’t consider the investment in light of the market and neighborhood it’s in.

The best approach is to first choose your city or town based on the health of its housing market and local economy (unemployment, job growth, population growth, etc.). From there you would narrow things down to the best neighborhoods (amenities, schools, crime, renter demand, etc.). Finally, you would look for the best deals within those neighborhoods.

7. Diversify Across Markets

Focus on one market at a time, accumulating from 3 to 5 income properties per market. Once you’ve added those 3 to 5 properties to your portfolio, you would diversify into another prudent market that is geographically different than the previous one. Typically that means focusing on another state.

One of the underlying reasons for diversification within the same asset class (real estate), is to have your assets spread across different economic centers. Every real estate market is “local” and each housing market moves independently from one another. Diversifying across multiple states helps reduce your “risk” should one market decline for any reason (increased unemployment, increased taxes, etc.).

8. Use Professional Property Management

Never manage your own properties unless you run your own management company. Property management is a thankless job that requires a solid understanding of tenant-landlord laws, good marketing skills, and strong people skills to deal with tenant complaints and excuses. Your time is valuable and should be spent on your family, your career, and looking for more property.

9. Maintain Control

Be a direct investor in real estate. Never own real estate through funds, partnerships, or other paper-based investments where you own shares or other securities of an entity you don’t control. You always want to be in control of your real estate investments. Don’t leave it up to corporations or fund managers.

10. Leverage Your Investment Capital

Real estate is the only investment where you can borrow other people’s money (OPM) to purchase and control income-producing property. This allows you to leverage your investment capital into more property than purchasing using “all cash”. Leverage magnifies your overall rate-of-return and accelerates your wealth creation.

As long as you have positive cash-flow and your tenants are paying off your mortgage for you, it would be foolish not to borrow as much as possible to buy more income property.

 

Marco Santarelli is an investor, author, and the founder of Norada Real Estate Investments — a provider of turnkey investment properties in growth markets around the United States.

The Alphabet Soup Of Estate Planning

May 8, 2014

Guest article by Todd C. Ganos, JD, LLM (Taxation), CFP®:

A/B, GST, APT, QTIP, GRAT, IDGT, DING, NING, BDIT, NIMCRUT, . . M . . O . . U . . S . . E.  These are just some of the types of trusts that wealthy and high-income families use to help reduce estate and income taxes as well as provide for asset protection.

We all know that the Internal Revenue Code is complex, and state-level tax rules are just as complex. In some cases, though, this complexity has created opportunities for tax reduction, and these trusts are the tools by which that tax reduction might be realized.

Certain types of trusts – such as generation-skipping transfer trusts or simply “GST” trusts – have been around for decades. GST trusts “skip over” the Internal Revenue Service’s ability to estate tax a family’s wealth as it passes down the generations. For families who are exposed to the estate tax, a 40 percent tax at each generation seems punitive. GST trusts can eliminate it. However, trusts follow state property law and most states require a trust to terminate after a certain number of years. As such, in time, the IRS would regain its ability to estate tax the family’s assets. The good news is that a handful of states allow trusts to remain in effect permanently or at least for a substantial period of time. In such cases, a family’s wealth would sidestep the estate tax permanently or at least for many generations. To take advantage of this, a trustee in one of those states must administer the trust.

The potential tax benefits of other types of trusts have come into focus more recently. Periodically, attorneys – on the behalf of clients – will submit a trust strategy to the IRS before implementing it to see whether anticipated tax benefits are valid. Recent rulings by the IRS have affirmed the validity of certain types of trusts that can potentially reduce or defer state-level income tax. For example, consider a family who lives in a high income tax state and who has a large position in a particular stock. The family learns that the company will be bought out with an all-cash offer. The family anticipates a large capital gain on the sale, which they can’t avoid. Knowing that Nevada imposes no income tax on trusts, the family might transfer the stock to a Nevada Incomplete-Gift Non-Grantor (NING) Trust prior to the sale and sidestep state-level income tax. The family would defer income tax payable to their own state until they take a distribution from the NING trust. However, if the family became a resident of a different state – perhaps a lower or no income tax state – and then took a distribution, the family would only pay state-level income tax (if any) to the new state of residency.

Beyond tax savings, there is asset protection. We know that we live in a litigious society. Wealth and high-income families use certain types of trusts to protect themselves from opportunistic plaintiffs. As with tax planning, key to implementing these asset protection strategies is having a trustee in a favorable jurisdiction. Alaska, Delaware, Nevada, South Dakota, and New Hampshire are five states that have enacted laws that are “trust friendly.” They impose no income tax on trusts and they have strong asset protection laws. Delaware and Nevada are the most favored among the five.

So, what might all of this alphabet soup of estate planning mean to your IRA? For individuals with larger IRA accounts, there is the Qualified Terminable-Interest Property (QTIP) Trust. While its name is not sexy, its tax result can be.

Normally, distributions from a retirement plan – whether an IRA, 401k, or another plan – are income taxed at the recipient’s ordinary income rate. For individuals in the highest marginal income tax brackets, the tax imposed seems almost punitive. Might there be a way for a family to reduce the ultimate tax burden on retirement plan assets and maximize the after-tax proceeds it receives? Yes.

Every owner of a retirement plan account designates a beneficiary who will receive the account’s remaining assets should the owner die. For a number of complex tax reasons, one would not normally designate a trust as the beneficiary of one’s retirement plan. In this strategy, there will be an exception. In this strategy, a QTIP trust will be used. It will be a stand-alone trust whose only function is to be the beneficiary of a retirement plan account. With a QTIP trust, the surviving spouse receives income for life and – upon the death of the surviving spouse – the remaining assets pass to children (or whomever).

However, rather than going the “income for life” route, one year after the retirement plan owner dies, the surviving spouse sells her interest in the QTIP trust – not the IRA, the trust – to a qualified charitable organization at a slight discount. (The discount is done for a specific tax reasons.) Because the surviving spouse is selling her interest in the trust – and not the IRA – it is a sale of a “capital asset” and proceeds of such a sale are income taxed as capital gains and NOT at the surviving spouse’s ordinary income rate.  The net result can be as much as 17 percent greater after-tax wealth to the family and a handsome donation to the family’s favorite charity.

Proper use of trusts – even in conjunction with IRAs – can yield very attractive tax results. You can never be too educated in all the possibilities trusts offer. Perhaps it is time to do some more research.

 

Todd Ganos is a professional trustee and the principal of Integrated Wealth Counsel, LLC, whose divisions provide family office, wealth management, trustee, and trust protector services.  He is also a contributor to Forbes magazine online and focuses on the management and preservation of family wealth. Todd can be reached at 866-898-1860.

Funding Your Own Pension Plan

April 29, 2014

For those that closely follow political and financial news, one of the biggest issues to face local and state governments has been underfunded pension liabilities.

Simply stated, the employers made a promise to their employees to provide certain lifetime payments during their retirement years, yet did not adequately fund those obligations year after year. The result is a mad scramble for political cover, and necessary yet painful reductions in pension payments for many retirees.

Evidently, the pain of employer pension funding is not limited to governmental entities. A recent Orlando Sentinel article regarding Walt Disney World union negotiations said that Disney wants the union to give up pensions for new hires, who would instead be enrolled in a 401(k) investment plan. Similar negotiations and changes are becoming commonplace across all industries.

In today’s environment, the obligation to prepare oneself for retirement rests on the individual, rather than their employer. Through 401(k)s, 403(b)s, 457s, Thrift Savings Plans and other such alphabet soup, the heavy lifting of saving and investing is on the individual.  Employers often simply provide a small match, if anything at all.

How healthy is your pension plan?  You have the ability to rollover most any employer plan into a NuView self-directed IRA and fully self-direct, once you have left the company. Now you have the opportunity to invest in anything the IRS does not prohibit, an extremely short list at that, rather than just a handful of trustee-selected mutual funds.

It’s inspiring when NuView clients feel an 8% return in their self-directed IRA isn’t good enough, and that through their own hard work, they found investments that built their retirement much faster. A second-generation private lender recently shared that she lends out of both her IRA and her friend’s for 12-15%, plus points. Real estate rehabbers are taking advantage of the foreclosures and rising prices to profit their IRAs, while still others take advantage of what they feel are low prices on gold and silver.

Whatever your passion, your retirement may be closer than you think, and your ability to retire isn’t someone else’s responsibility – it’s yours.  So fund your retirement plan until it hurts, invest wisely, and stay involved. If you need help, give us a call. Through local investor clubs and the right education and research, you might exceed your goal yet.