Living and Wholesaling

5 Questions to ask yourself before investing

1 – How much cash do you have?

Real estate investing is just that, an investment. You need some cash reserved for any aspect or niche in real estate. If you have little cash to start off with you can try your hand in wholesaling. More specifically you can bird dog (search out deals) for established wholesalers that know the process. This niche of investing still requires you to save up a little sum so that you can put in an earnest money deposit ($500-$2000) to place a deal under contract. If you want to make a decent living, make sure to have a couple times that amount so that you can put a number of lucrative deals under contract. If you are rehabbing a home, what happens when it takes an extra month to sell your property or a hurricane rolls through a nearby town and makes building materials a little more expensive than planned due to supplies moving up to repair damaged homes? These little bumps in the road take some cash reserve, some just in case money. Ask yourself, how much cash do I have, and how much can I save to keep me safe just in case.

2-- What is your tolerance for risk?

Capital and risk are inseparable partners. A person with five million in the bank can absorb a risk of five hundred thousand without serious, though maybe painful, consequences. Someone who is putting up their hard earned five thousand, hoping to turn it into fifty, is in a different situation. I'm not suggesting the one with five should stay home and watch television. Taking risks is admirable and exciting. But you should estimate realistically how much actual money you can put into an investment. The mirror half of that is to be honest with yourself and think about how much risk you can live with emotionally. Some people are natural adventurers, others prefer a cautious approach.

3—What are your long-term goals?

Some individuals are interested in capital preservation, others want maximum return in the shortest period. Each carries a level of risk, and also a time commitment. Each demands a particular level of investment of time and money. If you're looking for a ten percent profit on your investment in a matter of weeks, real estate isn't for you. If you are after high percentage gains, that is possible but risky and usually requires a year or more commitment. During that year, your investments are not liquid. Are you looking to build equity and appreciation in rental homes slowly and retire years down the line or are you thinking short term, just desiring a yearly income and still putting together your long term plan?

4—What kind of person are you?

Real estate investment, unless you just enjoy losing money and enduring stress, requires a tolerance for risk, a commitment of time and effort, and an interest in details — especially legal details. Beyond all that, the more basic requirement is an interest and aptitude for learning. Market study, advertising, contracts, construction, property law, and even a fair amount of psychology, all form a part of real estate investing. You don't have to become an expert in these, and other, areas before making a move. But if you don't enjoy learning about these and the host of other subjects that are part of the business — well, this just isn’t something you will enjoy.

If you still haven't been scared away — bravo! You stand to make a lot of money in one of the oldest businesses and biggest adventures still around in the modern world.

5—Who Is Mentoring you and keeping you accountable?

So many people read, learn, pay money, go to conferences, pay more money, go to more conferences, but don’t start. Why? They don’t have a mentor or other real estate professional or group to hold them accountable. Find a mentor. Find a successful and senior investor, many love to share their knowledge. They will answer your questions. Join a REIA group and go to smaller focus group meetings. These groups will give you an outlet to talk about your deals and people who will look forward to hearing about your progress. This will motivate you. Do it.

6 Months until Harrowing Tax Hikes

In just six months, the most substantial tax increases in recent history will take effect. They will hit families and small businesses in three waves on January 1, 2011:

First Wave: Expiration of 2001 and 2003 Tax Relief

In 2001 and 2003, the GOP Congress enacted several tax cuts for investors, small business owners, and families. These will all expire on January 1, 2011:

Personal income tax rates will rise. The top income tax rate will rise from 35 to 39.6 percent (this is also the rate at which two-thirds of small business profits are taxed). The lowest rate will rise from 10 to 15 percent. All the rates in between will also rise. Itemized deductions and personal exemptions will again phase out, which has the same mathematical effect as higher marginal tax rates. The full list of marginal rate hikes is below:

- The 10% bracket rises to an expanded 15%
- The 25% bracket rises to 28%
- The 28% bracket rises to 31%
- The 33% bracket rises to 36%
- The 35% bracket rises to 39.6%

Higher taxes on marriage and family. The “marriage penalty” (narrower tax brackets for married couples) will return from the first dollar of income. The child tax credit will be cut in half from $1000 to $500 per child. The standard deduction will no longer be doubled for married couples relative to the single level. The dependent care and adoption tax credits will be cut.

The return of the Death Tax. This year, there is no death tax. For those dying on or after January 1 2011, there is a 55 percent top death tax rate on estates over $1 million. A person leaving behind two homes and a retirement account could easily pass along a death tax bill to their loved ones.

Higher tax rates on savers and investors. The capital gains tax will rise from 15 percent this year to 20 percent in 2011. The dividends tax will rise from 15 percent this year to 39.6 percent in 2011. These rates will rise another 3.8 percent in 2013.

Second Wave: Obamacare

There are over twenty new or higher taxes. Several will first go into effect on January 1, 2011. They include:

The “Medicine Cabinet Tax” Thanks to Obamacare, Americans will no longer be able to use health savings account (HSA), flexible spending account (FSA), or health reimbursement (HRA) pre-tax dollars to purchase non-prescription, over-the-counter medicines (except insulin).

The HSA Withdrawal Tax Hike. This provision of Obamacare increases the additional tax on non-medical early withdrawals from an HSA from 10 to 20 percent, disadvantaging them relative to IRAs and other tax-advantaged accounts, which remain at 10 percent.

Brand Name Drug Tax. Starting next year, there will be a multi-billion dollar tax assessment imposed on name-brand drug manufacturers. This tax, like all excise taxes, will raise the price of medicine, hurting everyone.

Economic Substance Doctrine. The IRS is now empowered to disallow perfectly-legal tax deductions and maneuvers merely because it judges that the deduction or action lacks “economic substance.” This is obviously an arbitrary empowerment of IRS agents.

Employer Reporting of Health Insurance Costs on a W-2. This will start for W-2s in the 2011 tax year. While not a tax increase in itself, it makes it very easy for Congress to tax employer-provided healthcare benefits later.

Third Wave: The Alternative Minimum Tax and Employer Tax Hikes

When Americans prepare to file their tax returns in January of 2011, they’ll be in for a nasty surprise—the AMT won’t be held harmless, and many tax relief provisions will have expired. These major items include:

The AMT will ensnare over 28 million families, up from 4 million last year. According to the left-leaning Tax Policy Center, Congress’ failure to index the AMT will lead to an explosion of AMT taxpaying families—rising from 4 million last year to 28.5 million. These families will have to calculate their tax burdens twice, and pay taxes at the higher level. The AMT was created in 1969 to ensnare a handful of taxpayers.

Small business expensing will be slashed and 50% expensing will disappear. Small businesses can normally expense (rather than slowly-deduct, or “depreciate”) equipment purchases up to $250,000. This will be cut all the way down to $25,000. Larger businesses can expense half of their purchases of equipment. In January of 2011, all of it will have to be “depreciated.”

Taxes will be raised on all types of businesses. There are literally scores of tax hikes on business that will take place. The biggest is the loss of the “research and experimentation tax credit,” but there are many, many others. Combining high marginal tax rates with the loss of this tax relief will cost jobs.

Tax Benefits for Education and Teaching Reduced. The deduction for tuition and fees will not be available. Tax credits for education will be limited. Teachers will no longer be able to deduct classroom expenses. Coverdell Education Savings Accounts will be cut. Employer-provided educational assistance is curtailed. The student loan interest deduction will be disallowed for hundreds of thousands of families.

Charitable Contributions from IRAs no longer allowed. Under current law, a retired person with an IRA can contribute up to $100,000 per year directly to a charity from their IRA. This contribution also counts toward an annual “required minimum distribution.” This ability will no longer be there.

Flipper Cash A Major Factor in US Housing Market

It is a sad week for anyone looking for serious signs of recovery in the US housing market. In July, new home sales were at their lowest in history, and existing home sales were not much better. In the midst of this it is surprising to learn that almost one third of all home sales in the US were all cash deals (according to National Association of Realtors). Before the housing bust only 10% of deals were all cash.

Where does this change come from? Flippers and rehabbers! In a weak market like this people are still making money in real estate. Not many people have $150,000 lying around and to put up that kind of money or secure hard money for purchases means you have to have good confidence in your investments. With almost 30% of purchases being all cash, investors have that confidence.

25% Americans have FICO scores below 599

Greetings everyone, I've come by some information that I thought I'd share with everyone. 25% of Americans have FICO scores below 599. That means that there are a lot of people out there who have a hard time getting credit cards, and an almost impossible struggle getting loans for a vehicle or home.

Now, people who have stricken credit due to a foreclosure from a job loss do not fit in the same category as those who were fiscally irresponsible and were foreclosed on. Rules on credit scores are not mature enough to adequately analyze the reality of today's market. This is why we see people with great jobs and some good savings renting homes because their credit was demolished a couple years ago when they were let go from a job and couldn't afford their home when it took them a year to find similar employment. Loan underwriters need to take into account these situational factors.

What do you think about this information and what are your experiences involving good people with bad credit?

A humorous way to deal with junk mail

Here is an effective and humorous way to deal with junk mail: send it back! Yes, when you get a bill from your insurance or electric company and it contains ads for irrelevant things you don’t care about from companies that are not your insurance or electric provider, just pack those nice colored advertisements back into the return envelope with your bill payment and let them throw away their own junk mail.

When you have junk mail from random companies save a bit of it and when you receive a “pre-approved for” this or that credit card with an application and a return envelope, just pile your junk mail in the return envelope and send it to them along with their empty application for a credit card. You pre-approved me for a second mortgage? That sounds great. You know what else sounds great? Coupons for this new pizza place down the road. They have pre-approved YOU for some great cheap pizza!

Send this to 10 friends or I'll have bad luck?

You know what most of the e-mails you get that tell you "forward this on to 10 friends or you'll have bad luck", "forward this on to 10 friends unless you don't care about (insert cause)" etc. have in common? Most of these e-mails have a tracking system connected to them. That means that each time you forward that message to other people their e-mails are recorded. This is how companies collect vast lists of "active" e-mail addresses to spam with advertisements.

I know it sounds terrible but that's what 9 out of 10 of them are, just e-mail collecting campaigns. It started with actual mail campaigns back in the day that said: HEY, this little boy in Florida is going for the Guinness Book of World Records for most business cards, so send your card back to this address and mail this message on to as many people as you know! Do yourself a favor and don't let yourself and your friends' information be collected without your consent.

By the way, e-mail petitions are NOT ACCEPTABLE TO CONGRESS either. These are at best spirited but vain attempts at policy change but are more likely another great ruse to get your active e-mail address. Who wants to send e-mails to addresses that haven't been checked in years when they know you have checked your inbox in the last week?