Investing Your IRA

These days, some homeowners are choosing to rent out all or part of their home to help pay for their mortgage costs. But being a successful landlord is more than just sitting back and collecting the rent. Here are some tips to help if you ever choose to become a landlord.

Charge a Fair Price: All real estate is local, and the best and quickest way to success is to know your marketplace and what you can expect to charge for a fair rent in your area. Some things you can do to determine a fair price include studying local classified ads, scouring the Internet, and finding out what neighbors are charging for rent.

Write the Right Ad: Getting the right tenant is even more important than picking the right price to charge. Attract the right tenants with ad phrases such as "good credit and references," "no pets," "no smokers," etc.

Create a Thorough Application Process: Be sure to require proof of identity, past addresses and landlord contact information, employment information, and references. Also, ask questions like how many people will be living with the applicant and how long they plan to rent.

Check References EVERY Time: Call their previous landlords and ask if the rent was paid on time. Find out how the property was left when they vacated. Were the tenants loud and troublesome? Did they complain a lot? Did they report small repairs in a timely manner? It's easier to avoid a bad tenant now than to try and evict one later.

A Final Creative Idea: Before signing the deal, make an unexpected visit to your prospective tenants' current apartment or residence. You will get a good look at how they keep their home as it is likely to be the way they keep yours.

And Always Ask the Experts: Be sure to check with your tax professional to make sure you file your taxes correctly and to see if there are any rebates or other benefits you qualify for.

Some people choose to be landlords, while others have it thrust upon them due to market conditions. Either way, taking the steps mentioned here will help make the experience more successful for everyone involved.

This article is by  Emily Brandon

The new year will move us one year closer to retirement. But few Americans are more prepared than last year. We may be tracking the stock market more closely than ever, but we still need better saving and investment strategies

Set manageable savings goals. Amassing $1 million or more for retirement—or any other number you have calculated—is certainly a worthy goal. But accumulating a large chunk of cash takes time and diligence, with few milestones along the way. Setting intermediate savings goals, such as contributing enough to get your annual 401(k) match from your employer or saving 10 percent of your pay, can make saving easier. Punam Anand Keller, a management professor at Dartmouth College's Tuck School of Business, says making a list of what you will use your retirement stash for makes saving less of a sacrifice. "I am saving now so that when I have time when I am older and retired, I am going to go on exotic international trips with my friends," she says. "You can actually see it going towards something concrete rather than just aiming for $1 million."

[See America's Best Affordable Places to Retire.]

Maximize retirement savings tax breaks. Utilize tax-deferred retirement accounts as much as possible in the years leading up to retirement. Workers ages 50 and older can contribute up to $22,000 to a 401(k) in 2010. Only 10 percent of retirement plan participants saved the maximum amount in 2008, according to an analysis of 3 million Vanguard account holders. At a minimum, contribute enough to get your employer's full 401(k) match. Those over age 50 with an adjusted gross income of $66,000 or less ($109,000 for couples) can save another $6,000, tax-deferred, in an IRA. If neither you nor your spouse has a retirement plan at work, the IRA income limits don't apply.

Save your sick days for retirement. Some companies give workers cash payouts for unused sick and vacation days, typically when they leave a job—but sometimes while still employed. Employees can now deposit that cash windfall directly into their retirement account, according to a new IRS ruling. Ask your human resources department if your leftover annual leave can be tucked away in your 401(k), especially if you can't roll over unused time to next year.

[Find Your Best Place to Retire.]

Make a long-term investment plan. Stop adjusting your investments every time the stock market appears to hit a peak or trough. "The biggest mistake people make is bailing out when the market is doing badly and then buying back in when things pick up," says William Droms, a Georgetown University finance professor. "It's best not to make a precipitous change in your portfolio because of the crash of 2008." Traditionally, workers have gradually reduced their stock exposure as their desired retirement date approaches. "If you're really nervous about the market and you want to transition your portfolio to be more conservative, don't do it all at once," Droms advises. "Do it over a two-year period until you get where you want to go." Keep in mind that you also need to beat inflation and prevent outliving your money.

[See Sticking With Stocks, Even in Retirement.]

Minimize investment fees and penalties. Familiarize yourself with 401(k) and IRA rules to avoid penalties. Withdrawals from retirement accounts before age 59½ (and 401[k]'s at a former employer before age 55) typically come with an early withdrawal penalty of 10 percent plus income tax on the amount withdrawn. After age 70½, annual distributions from retirement accounts are required. Seniors who fail to take the withdrawal face a tax penalty of 50 percent of the amount that should have been withdrawn plus income tax. Also, pay close attention to investment, administrative, and transaction fees, which can cut into your returns over time. Note the expense ratio when choosing among funds in the same asset class. Consider lower-cost investments such as index funds.

This article is by Kimbrough (Ki) Gray who has worked with Austin real estate for over a decade.

Foreclosure City has created the perfect storm in many major cities in the U.S. - the perfect storm for investors to find great real estate deals, that is.

Large inventories, low interest rates and homeowners hungry to sell all make certain cities ideal for picking an affordable home or two. Before you break a leg rushing out to buy that bargain real estate, however, you'll want to keep in mind the most important factors in a successful real estate deal.

Location, condition, price and financing are all consideration you'll want to keep in mind in order to successfully find and acquire a great real estate deal.

If you're looking to buy rental property that will be paid for monthly, then you may want to set your sights on lower-middle-class areas. Most owners who occupy their homes in these areas keep their homes well maintained.

Although you'll want to avoid obvious signs of a bad neighborhood, like boarded up homes or gang graffiti, accessible transportation and recent signs of construction can translate into good income on rental properties. It is important to note that prospective renters with children will want to live in areas with good public schools. Neighborhoods where homes are similar in size and have similar amenities are also preferred, along with areas where homes are mostly three-bedroom, two-bath or more.

Homes that are less than ten years old are more favorable, since almost all of its systems will be current, and no major renovations should be needed for some time. If considering a home more than 50 years old, make sure all systems have been updated, from wiring to plumbing. If not, you're going to be investing a lot of money on repairs.

The ideal situation would be to purchase a home that does not need repairs; however, there are an abundance of homes on the market today that need significant repairs, but can be bought at bottom basement prices. Many are owned by the lender, and are uninhabitable. Others may not need anything more than a coat of paint or new carpet.

If you decide to make an offer on a home that you think is in need of repair, make sure you make it contingent upon the inspection of the home, along with an acceptable estimate for all necessary repairs.

Price may not be that easy to determine, since the sale of so many distressed properties have negatively impacted the sale price of all homes in the area. Bank-owned properties are in need to be sold, though. Banks are interested in holding property; they are interested in making money off the property based on interest. Many have been willing to take a loss on property just to unload it.

Your target on a bank-owned property would be to offer 50 to 60 percent of the listed price, depending on the condition of the property. The more work that needs to be done, the deeper the discount you ask for. That will give you a starting place for negotiations.

Your final frontier to conquer in your investment is financing. Fannie Mae may be where you'll want to start on your quest for financing. Also, check with your local lender. Mortgage brokers often can find you the very best deals on interest rates and many can be located easily on the web. Just make sure they are reputable. Ask for all fees in writing prior to signing anything.

This article is by Todd Foust is the chief marketing executive for the FOUST Team at C21 Discovery; one of the top-selling real estate teams in Southern California. 

The recent downturn in the real estate market has caused many homeowners who were banking on the equity in their house to rethink their retirement planning. Rather than run from the depreciating real estate market, they should consider investing in properties that will carry them through retirement.

There is a defined distinction between property you would consider as a home and property best suited as an investment. Many times, real estate that would make a great home would be a lousy rental, while similarly, property that provides excellent financials for investors would not be real estate you’d be proud to call home. This is exactly the reason why real estate buyers need define exactly what purpose the property they are searching for will serve, and then use a specialized approach to find properties that would make good candidates for that usage.

Lets first consider real estate used as your primary residence. We will first examine things that make the best homes terrible investments and then how these same shortcomings are huge pluses when viewed through a pair of rental property glasses.

Investing in Real Estate That You Want to Call Home

Uncertain Appreciation – Markets change and no matter how highly desired your location is, there is always zero certainty that appreciation will happen within a short window of time.

Illiquidity – Investing in a bigger home, in lieu of acquiring rental property, has the distinct disadvantage of not being able to be turned into quick cash without selling or refinancing. Since the property generates zero monthly cash flow, the only way to collect income is by taking on additional debt (ie refinancing) or an outright sale which can take months to close.

Impractical – Beside being slow to sell, selling your home to cash in on the equity leaves the big obvious problem of “Where will you live?” Your going to have to live somewhere and this usually requires either buying another home or paying somebody rent.

Tax Consequences – Spending a large amount of money on your home is a rewarding experience and can increase your homes value. You will not, however, discover any new tax breaks even if your tax liability increases. Remember, you are the one paying the taxes in the first place, and deducting them from your income liability does not completely negate those payments. Even if you extend you loan to keep your interest deductions, that additional monthly payment that you picked up during the refinance may have been better used somewhere else, such as in rental property.

Investment in Rental Property

Cash Flow – Investings polar opposite of appreciation is cash flow. Cash flow of an investment property is the real indicator of its value. In short, cash flow can be defined as the amount of money the property generates in rents after all expenses are paid.

Whether a property appreciates or depreciates is really at the whim of the market and availability of buyers. There is not much a homeowner can do to increase the value of their home without taking on considerable costs that may outweigh any gains in value.

Income property owners, or cash flow investors, have much more control over their properties value. They can increase rents, decrease expenses, or any combination of these to make the cash flow situation better and ultimately increase their property value.

1031 Exchange – An investor’s response to lack of liquidity is found partly in the above explanation of cash flow and partly in a process known as a 1031 exchange. A 1031 exchange allows an owner of rental property to sell their property, identify a replacement property, close escrow on that property, and defer any capital gains taxes until a future date.

From Impractical to Practically Too Easy – If the investor decides they want to completely liquidate the property in the future, there are even strategies for this that will severely limit their tax liability and they won’t even have to worry about finding a new place to live! There are lots of options open to rental property owners, none of which are available to a primary residence owner.

Additional Tax Benefits – Unlike your home, the value of income rental properties is allowed to be depreciated from most owners tax liability. Also, during rougher rental years, owners are allowed to write off losses directly related to their investment property. Even during a bad year, the tenants that you do have are continuing to pay off your mortgage until you owe nothing.

By delaying a little gratification and looking into purchasing rental properties right now, most people will be able to generate a little income, create peace of mind for their own retirement, and have more assets to pass on to their children. We encourage you to start looking this direction immediately. After all, the timing is perfect: rents are up, prices are down, and interest rates are still historically low. Even in a down market, you won’t care if values ever go up because your property continues to generate income and your tenants continue to pay off your mortgage.

Even though the timing is perfect, please do not use your home for leverage in order to get into the rental market. Save some money every month, get a second job, or ask your boss for a raise. Just please leave the ever fickle equity in your home alone!

We are not advocating living in meager homes and never upgrading your property. In fact, if you have your retirement settled then it may make perfect sense to live a little. We’re speaking more to the people who don’t have a clear plan for their retirement, have a little money to spend now, and want to really invest in their financial future. If that sounds like you, forget the kitchen remodel, the time to get in the rental market is now!

This article is by Christine Karpinski is the author of How to Rent Vacation Properties by Owner, 2nd Edition: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment and Profit from Your Vacation Home Dream: The Complete Guide to a Savvy Financial and Emotional Investment

 

It seemed like a great idea 20 years ago. You’d buy that condo in Florida, vacation there as often as possible, then someday sell your primary residence and spend your “golden years” basking in the sun. But like so many Americans, the nation’s recent economic troubles have given you reservations about taking on too much risk, so your golden years will have to wait. And though you’d hate to sell your beloved getaway, keeping up two homes just won’t be possible on your recessionized budget. Is there a solution?

“Absolutely yes,” says Christine Karpinski, director of Owner Community for HomeAway.com and author of How to Rent Vacation Properties by Owner, 2nd Edition: The Complete Guide to Buy, Manage, Furnish, Rent, Maintain and Advertise Your Vacation Rental Investment. “Renting out your second home will allow you to keep it during these tough times and sets you up with an easy, DIY business that will continue to bring you profits long after the economy has gotten back on its feet.”

Karpinski offers five reasons why you should consider renting out your second home:

1. Your fixed income hasn’t kept up with your lifestyle. Even when you’re happy to give up the daily grind of your job, losing the paycheck that comes with it can be pretty painful. Factor in inflation, rising taxes, a depleted 401K and unexpected “new” expenses, and you may find that what seemed like a manageable cost of living five years ago doesn’t seem that way anymore. Your second home, even if it’s paid for, may start looking like a liability due to property taxes, homeowner’s association dues, and maintenance costs.

2. You’ve decided to “retire” from retirement. It is not unusual for people to test-drive retirement and find that it’s just not for them. Work can provide many rich rewards-structure, social interaction, mental stimulation, a sense of purpose, and so forth-that people keenly miss when they retire. And when they discover that quitting “the rat race” isn’t quite what they thought it would be, more and more people are opting to return to the workplace. And nowadays, people simply can’t afford to quit the working world completely.

3. Circumstances have changed since you made your retirement plans. Maybe grandchildren have arrived on the scene and you can’t bear the thought of moving hundreds of miles away from them. Or your parents are in poor health and need you nearby. Or your spouse has passed away and retiring in the Great Smoky Mountains was his idea, not yours. Regardless of specifics, your life bears no resemblance to what you thought it would look like back when you made your retirement plans.

4. You’ve suddenly realized there’s no place like home. Maybe there are no dramatic life circumstances keeping you from moving to your “dream destination.” Maybe you’ve simply changed your mind. You’ve decided you like being near your friends, you don’t want to leave your church or synagogue, and your Tuesday lunch with “the girls” or Thursday Bridge night with “the guys” is a tradition you just don’t want to give up. Or perhaps you’d like to stay in your hometown most of the year and spend the bitterest winter months in your beachfront condo. Renting your second home out during the time you are not staying there makes it financially feasible to keep both homes.

5. You’re currently renting your second home through a property management company, but you’d like to earn more. Ditching the middleman may be the way to go. Property managers charge a hefty fee for their services. In fact, as Karpinski’s books point out, you have to rent ten more weeks with a management company to end up with the same amount of money you’d make renting by owner. And with the growing popularity of vacation home rental websites like HomeAway.com, finding renters is surprisingly easy.

“Renting out your second home can make for a valuable revenue stream that will not only prop you up now when you need it most, but could also make your golden years even more golden in the long run,” says Karpinski. “And if you’re like most people, you’ll find that not only will you quickly get the hang of renting, it’s actually fun.”

This article is by Jim Coleman who has been in the financial services industry for over 20 years. Coleman specializes in providing comprehensive financial planning, asset management and estate planning services.

This isn’t the first time the country’s faced economic uncertainty, but this is a once-in-a-generation confluence of events that have led to a severe market downturn and a ferocious contraction of the global economy. An economic crisis of this magnitude occurring at a time when a record number of people are in or within arm’s reach of retirement is significant.

“This could be a secular bear market,” says Jim Coleman of Coleman Financial Advisory Group. Secular trends are major bull or bear trends that generally last for a decade or two. Cyclical trends are minor bull or bear trends within a secular trend. “With that as a possible time horizon, our planning lens must change to ensure we protect any existing wealth while taking advantage of the eventual bull rallies that periodically occur within the secular bear market. The combination of the severity of the market’s contraction and the possibility of an extended downturn means managing finances in a very different way,” says Coleman.

While there is no general prescription that will solve the woes of all investors, there are common factors to consider. Any tactical move should be a function of the safety of income stream, how much is already saved, and framed by life stage and goals.

There’s no question that for those in the 20 to 30 year-old range, the down market is a buying opportunity. What’s more, plummeting home values coinciding with low interest rates have created an excellent opportunity for qualified first-time homebuyers.

Investors in their 40s and early 50s need to buy selectively in the downturn - then sell selectively in the eventual upturn. For those who have not invested heavily in the market, it’s a good time to start participating. For anyone ready to commit to adding funds to the market, it may be wise to use the automatic contribution option, similar to a 401(k), with other investment accounts. However, if a significant nest egg is already in place, consider managing that more conservatively than the new dollars invested into the market. It’s equally necessary to manage any existing debt to avoid being overly leveraged in an environment where income taxes, property taxes, and the cost of living are likely to rise.

Investors in the 50 to 60 year-old group have less time to recover from the recession’s blow. According to the Employee Benefit Research Institute, 401(k) investors with more than $200,000 in account balances had an average loss of more than 25% from January 1, 2008 to January 20, 2009. For many, that may mean delaying retirement or taking a part-time job. For this age group, the recession combined with increasing longevity requires a shift in their focus from return on investment to reliability of income, known as the New ROI.

Retired persons must keep an eagle eye on portfolio withdrawals. Although 4% a year has been the accepted standard safe withdrawal rate, it may be prudent to withdraw less in years of substantial market declines. Also, this year the Required Minimum Distributions (RMDs) from IRAs and employer-sponsored retirement plans, including qualified pension plans, qualified stock bonus plans, qualified profit-sharing plans, 401(k) plans, 457(b) plans, and 403(b) plans, have been suspended to alleviate the pain of making withdrawals from accounts that likely posted losses.