An Introduction to Retirement Investing: Sunday Morning Thoughts 28 October 2012

Investing in a 401k is the way many people invest for retirement.  You make a set amount of contributions from your pay check.  A 401k, as we have seen in recent years, is not an economy proof method of investing.  A 401k has a tendency to follow the stock market.

So when the market is up, your 401k is up, but when the market has turmoil so will your 401k.

No one is telling you to not have a 401k, what we are telling you, be more proactive in your investing.

A self-directed IRA is a proactive vehicle for investing.  Although there are fees associated with execution of an investment, but fees are a reality when investing.

With a self-directed IRA you can invest in real estate by being a private lender.   The untaxed interest you earn on the investment goes back to your self-directed IRA.

The Warren Buffett way,  is compounded interest which is what an investment from a self-directed IRA will gain.

2012	$0.00	$0.00	$10,000.00
2013	$0.00	$511.64	$10,511.64
2014	$0.00	$537.79	$11,049.43
2015	$0.00	$565.30	$11,614.73
2016	$0.00	$594.23	$12,208.96
2017	$0.00	$624.63	$12,833.59

In the above chart, if you invest $10,000 and had a five-year contract at 5% interest, at the end of the  5 years your investment would grow by $2,833.59.

Ask yourself this question, has your 401k in the last five years earned $2,833.59 or more?

This is just an example, and an investment in real estate does have some risk involved.  In the investor packet we will provide information on the property to help you make a decision.

Private Lending Tips: Sunday Morning Thoughts 15 May 2011

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So you have decided to become a private lender.  You have considered many options on the types of deals you will choose to provide lending.  You understand that private lending is not a REIT, but is more like being the bank.  There are things you should keep in mind when private lending.  This is a short list given in a series of posts.  As you become more familiar with lending you will without a doubt make a few additions to the list for yourself.

Cost of Money

Level of Risk

What to do when a loan goes bad

Profit/ Return on your investment

Cost of Money:  How much is money costing you as a borrower?

You should not use your life savings.  This should not even be considered as a viable option.  Keeping a reserve is even a strategy Warren Buffett utilizes.  Answer a basic question-how much can you afford to lend and at what cost?

Borrowing to lend is a viable strategy; many people use the leverage of other people’s money to make money.  An example, a homeowner buys a house then takes out a second mortgage to pay off credit cards, cars, and to free up currency.  They are making payments on the second mortgage but are saving money in interest and possibly receiving tax advantages.

You can use a line of credit if you own something which can be used as collateral, such as a house, property, etc.

Using your IRA is also an option.  When using your IRA the profit goes back to the IRA aiding in the building of your future savings.  With an IRA you are using the money in the IRA versus borrowing against the IRA.   For more on IRA account usage please read our past post.

What is important to remember, how much interest you are paying on the money you are borrowing, and then subtract that from the interest you will gain from the lending.

For example you are the private lender, and are looking to earn passive money.  You do not wish to own the property but would like an investment with a decent return, something better than a CD.  You find an Investor who has a deal which needs funding.  The investor offers you 8% interest on terms for the use of your money to quickly close a profitable deal.

For arguments sake, let’s say you as the private lender decide to use a line of credit from your property to fund the deal.  Always remember you will be responsible for the repayment of the line of credit.  The investor as a borrower from you is responsible to repay the loan you are extending to fund the deal. If the bank gives you a line of credit with 4% interest and you loan the money to the investor at 8% interest you will have made a 4% earning on the difference in loans.

In short borrow for less interest than you loan.

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If Warren Buffett is looking for Deals Shouldn’t you be?: Sunday Morning Thoughts 27 Feb 2011

Well if you have been keeping up with all the latest news, you will notice that Warren Buffet’s letter to his investors is choc full of information not only for his businesses but for all Americans.

Warren Buffet is looking for companies to purchase and he’s paying cash.  Berkshire Hathaway is worth 52Billion dollars, with 38Billion dollars in cash reserves.

“Money will always flow toward opportunity, and there is an abundance of that in America.”  Warren Buffett

Warren also made a bold claim that the housing industry would bounce back in a year or so, although the bounce back is more or so than a year, if Warren is taking time to mention it, it can only mean take time to invest in it.

People do not realize that investing in real estate is still a safe bet, and waiting for the rock bottom you may miss it and be involved with the buying frenzy.

America is on the cusp of the recovery, it has been a long and hard road.

Take time to evaluate what, how, and when you want to invest.  Make sure the risk does not out weigh the return.  We have seen many people sitting on the sidelines waiting, but think, if Warren Buffet is no longer waiting and is actively seeking investments,-his elephant gun is loaded and his trigger finger is itching.

When Bad News is Good News: Sunday Morning Thoughts 26 September 2010

What do these stocks have in common?

The Washington Post, Coca-Cola, and Geico.

In two words, Warren Buffett.

The aforementioned stocks, their price once fell on the heels of bad news.  One person’s sell is another person’s buy.  As for these stocks, Warren Buffett was able to purchase them on the heels of bad news, when their prices fell.

These once producing stocks, turned into an undervalued bonanza due to bad news, turned and became highly producing once again.

Warren Buffett uses specific criteria to indicate whether a stock will perform well or not.  One of his criteria is specific to how businesses run and if they are monopolies in the consumer market.  They either have to have a specific service or product geared towards consumers.

Profitable real estate investing in undervalued properties is very similar to how Warren Buffett picks his undervalued stocks.

In real estate investing, there is more to it than mere location.  There are a number of factors when picking a profitable investment property.

The location for rental property is best in a lower middle to mid- middle class area.  This type of area will always have rental properties and rental communities which tend to have lower vacancies.

A note on vacancies, if a property is mismanaged in a profitable area, the vacancy for that particular property would be high for the area.  Most people regardless of socioeconomic class like living in a nice place.

No one wants to live in an apartment community or a rental house if things never seem to be in working order.  If the kitchen sink leaks and it takes the management 3 months to fix it, then that would be a poorly managed rental.

If the bath tub does not drain properly, well the tenants will probably move because people expect things for personal hygiene and food preparation to be in working order.

Delayed fixing and a do not care attitude can take a once profitable investment and turn it into a money pit.

The Bad News is your investment is tanking.

The Good News for a savvier investor is the investment is not turning a profit but with better management can become very profitable.

Picking a once profitable rental investment which has now become another person’s money pit, can prove to be lucrative if you have a plan to change it from mismanaged to renter/ people friendly.

There will always be diligence on the part of the investor regardless of type of investment.  When a person invests with Immaculate Enterprises, we ensure an investment property will be properly managed for our renters.

Undervalued and Appreciating: Sunday Morning Thoughts 12 Sep 2010

With stocks poised to make a few volatile moves this month, investors will be possibly moving their investments around, again.  This movement may cause the stock market to become volatile, again.

But this jumping in and out of stocks is to be expected at this time.  The Jack Rabbits are into all types of investments, with a diverse portfolio of overvalued under producers.

No one actually has to jump in and out of the stock market.  They could do what Warren Buffett does, according to the book Buffettology, he looks for undervalued stocks or even waits for promising stocks to have bad news, causing a massive sell off, if the news is bad enough; thus making the stock an undervalued investment.

Which brings us to the current real estate market, undervalued investments abound.

Many investors and would be buyers have been sitting on the fence waiting for the residential and commercial markets to reestablish themselves.  This is actually a contrary practice, why wait for the property to become higher priced when you can invest at a lower price thereby reaping the benefits of appreciation.

The History Lesson of the Stock Market Crash

Prior to the crash people were receiving higher incomes. With more income average people invested in the stock market driving prices up.  With an unbelievable amount of prosperity there looming in the background, was the thought of a stock market crash.

Then it happened.

Economist had warned of a crash, a bubble bursting, but it fell on deaf ears.  So then the tragedy began, the bottom fell out and everyone scrambled to keep from losing everything.

The world was succumbing to a global economical crash and a wide spread fear of a faulty recovery.

The banks began failing one by one, occasionally four or more at a time.

And don’t get me started on the whole immigration thing.

When reading this article please keep in mind the title, the history lesson of the stock market crash.

If history has taught us nothing but one thing, in time everything repeats its cycle.

The previous stated lesson is from the crash of the 1920’s the last quarter of 1929, October 24^th to be exact.

Back then a group of bankers pooled their money to buy stocks to convince others to stop selling their stocks, while in this century we experienced the Goldman- Sachs scandal, a legal pump and dump.

An Unethical confidence game.

Although there were rumors the bankers were secretly selling their stocks after the pooling and buying.  This would still be a legal pump and dump.

Unethical.

In the stock market crash of 1929 the bottom was not finally felt until July 8, 1932, an approximate time period of two years, nine months, and two weeks and two days.

Even today economist are looking at the stock market crash of 1929, comparing it with our current economy.  The global economy at that time was bleak, but not too long after, the healing did begin.

We started a new cycle of growth.

Our new cycle of growth is going to be small hops (as stated in a previous post) which will total one big leap when we look back a year from now.

A recovery is not an overnight fix.

At this time we should take advantage of the downturn before the upswing and invest in the one tangible asset that will appreciate in the very near future.

Commercial real estate is seeing more foreclosures and is due for even more, making the prices unbelievably low.  This low will not last more than two to two and half years.

The residential housing industry is also going to experience another down turn before its appreciation upswing.

As far as the stock market, well picking stocks like Warren Buffett is better than Jack Rabbit investing any day.  The Jack Rabbits seem to go broke while Warren is still making gains.

So think about where you would like to be in five years.

Would you like to be thinking about how you shoulda, woulda, coulda (sown) invested to (reap) profit, or will you be thinking about all that you are reaping because you realized it was time to invest.

Jack Rabbit Investing: Sunday Morning Thoughts 29 August2010

The current stock market reaction is looking less like investing and more like “Jack Rabbiting”.   Investors’ are quickly pulling money from one place to another, and then moving their money to some other investment. 

Please do not confuse the term Jack Rabbit investing with moving investments strategically for a better return on investment.  The latter is a calculated move based on data about a potential investment. 

Jack Rabbit investing occurs when you have a stock market like the one we have now, a very bear market with even the best of companies lacking good profits. 

Risk is greater with our new down economy many people are looking to jump into an investment to make a quick buck, but this is not the type of market to do that easily. 

We now have a stock market with undervalued stocks set at much lower prices.  Buying the stocks now will enable a savvy investor to buy more of the undervalued stock and wait for appreciation.  One of Warren Buffett’s strategies is to buy stock in a company which meets his checks and balances.  He then holds the stock for at least five years. 

This same principle can be applied to buying real estate.  Instead of doing Jack Rabbit investing such as quick flips, buy an undervalued piece of real estate and hold for appreciation.  

It’s as simple as that, buy low, hold, and possibly sell high in the future.  

There are many quotes throughout the years about how real estate is dead.  Bu it never fails, real estate roars to the foreground and becomes the corner-stone of an economy. 

This is one of those times we are in now, real estate is undervalued in many appreciating areas and in areas down now but will appreciate again. 

You can either wait on the sidelines for the real estate market to rocket back, or you can capitalize on a market that will soon appreciate once again. 

 The Option is Yours.

The Real Estate Investment Scam

Image via Wikipedia

Yes we were all scammed by predatory lenders; the economy along with the housing market, ruptured horribly.

As we are now trying to steady our feet some are touting out how real estate is not a good investment, this is the new scam, misdirection.

Why invest in real estate now?

Warren Buffett said: when others are greedy be fearful…

People were gobbling up all the real estate they could with the subprime loans, jumping into the deep end of the pool without any basic knowledge of how to float let alone compete in a race they had never trained for.

Many investors as well as home owners bit off much more than they could chew, which resulted in our current housing slump.

So, while others were greedy those in the know stood still, watched, and waited.  What everyone saw in the news “Housing bubble will burst”.

 

The housing and commercial real estate bubbles have both burst.

Warren Buffet:  When others are fearful be greedy.                                               

Many investors have called our current down economy the perfect storm.

Bargains Everywhere, America on Sale!

 

The housing and commercial real estate glut equals much lower prices on once coveted real estate.

Houses people once could not afford are now priced at half or less, but some of those areas are now less appealing due to having more vacant homes than neighbors, the appeal for the areas will return as new owners move into once vacant foreclosed homes.

If the past has taught us nothing, it has shown us things will come around again and again.

After the housing bust of the 90’s, people purchased homes that were bigger for the same price or lower than their current residences–more rooms, more square footage, and more space- for their families.

In this market we have a lot of “sideline” buyers, people who were priced out of their preferred areas, and now can afford to buy.  So just because the housing credit is due to end on 30 September it does not mean people will stop buying real estate.

First we had the rush, now the slow down, after 30 September will be the step up.

People will step-up to buying foreclosures but only in areas were there are jobs.  New housing will also find it’s niche buyers, most people love new, never been used before.

Commercial real estate is one of the best real estate investments at this time.  Many people bought investment real estate such as apartments without understanding the pitfalls of commercial investing.

Many newbies decided to buy multi-unit apartments and would manage it themselves from a few states away.  Not a good idea.  Managing apartments means you are customer service, maintenance, salesperson, and problem solver.

For those with low maintenance apartments and tenants self-maintenance is a good option.  But that’s not the case in a majority of scenarios.

One of our recent ventures is a foreclosure, a 42 unit community in a desirable part of Fort Worth, Texas.

The original owner was an investor from California, two states away, who decided to manage the property himself.  We will call him Buster.

Buster did not check references, nor did he do a credit check, etc. before approving his tenants.  Buster found out the hard way, approving any and all applicants can lead to a negative cash flow.

The better tenants began moving out in the droves due to a lack of management, complaints going unheard; people expect a response and a solution ASAP.  Complaints about leaky sinks, light bulbs blown out, tubs slow to drain, and or problem toilets should be looked at as soon as possible to keep it from becoming a bigger problem in the future.

Without paying tenants, Buster’s investment apartments became a money pit, in short he busted.

Buster was not the only new investor to find it challenging to maintain so many units.  Others have fallen with pretty much this same type of scenario.

Not all commercial foreclosures are lack of maintenance issues; many investors are having issues with the refinancing of their loans.

The credit crunch strikes again.

 

This is why Private Investors are so very important to our economies recovery.  It does not take an extremely large investment to become a private lender.  The returns on investment may out perform the stock market, depending on your current investment strategy.

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