Posted on December 17, 2009 @ 4:11 pm - Written by BawldGuy
What matters most when implementing a Purposeful Plan is the thought process preceding it. That process involves the application and integration of several principles and concepts. The foundation though is the all encompassing drive for safe, reliable retirement income, preferably as sheltered from governmental taxation as possible, given the individual investor’s unique circumstances.
Many who like real estate as both a capital growth and cash flow vehicle, fail to clearly understand what roll both approaches play in their retirement. Possibly the #1 myth is that buying real estate for cash flow is always the way to go. It’s that attitude which has led many an investor to mediocre retirement income, and/or the forbearance of millions of dollars in net worth. It’s the latter you can blame for most of the disappointment when talking ’bout retirement income.
Maximizing your retirement income through real estate investing is all about timing. Read the rest of this entry »
Posted on December 15, 2009 @ 3:48 pm - Written by BawldGuy
When any particular resourse we have is finite in nature, trading it for something on our menu means, by definition, there’s something for which we didn’t trade. Though we chose ‘A’ over ‘B’, part of the cost of choosing ‘A’ was passin’ on ‘B’. Much of the time we learn what that exact cost was by way of hindsight. Best case scenario is that cost being, more or less, about what we thought in the first place.
This concept is called opportunity cost — the economic consequences of choosing one thing over another. Sometimes the cost isn’t just economic. For example, did you attend college? Did you have a wide choice? Years later, are you happy with the one you chose? Opportunity cost. Read the rest of this entry »
Posted on December 8, 2009 @ 5:10 pm - Written by BawldGuy
The cliché about partial knowledge often being more dangerous than downright ignorance has proven true in my professional experience. We humans seem to desire absolutes when we learn new things, especially when it comes to investing. Allow me to smash that fantasy once and for all. The old saw sayin’, “The only absolutes are death and taxes” is as real as a heart attach. Ironic, cuz the consequences of behaving as if things are narrowly defined in the Internal Revenue Code as infinitely incontrovertible truths of the universe, impervious to changing facts, are sometimes heart stopping.
Consider the following. I wrote about this earlier this year, but in the last several weeks, there have been similar requested consults. Sadly, a couple of them came to me too late for me to really help much. Pay attention, cuz this particular story gets played out every year across the country. Gettin’ a huge tax bill as a complete and shocking surprise is no fun — I know, I experienced it as a young man. It was gut wrenching to say the least.
This particular story has a pretty happy ending — not always the case, unfortunately. Earlier this year an agent called me out of the blue. I’d never met them, but they’d been reading my stuff here and over at BloodhoundBlog.They had just one question, which led to a boatload more, as usual. Read the rest of this entry »
Posted on November 19, 2009 @ 4:30 pm - Written by BawldGuy
The most common reply I hear from folks calling me is, “I didn’t know that was possible.” Or something similar. It all goes back to the root of successful investing, which is doing things on Purpose — Purposeful Planning. One of the main factors in any Plan is how taxes/tax shelter blend into the big picture. Though you never wanna buy property solely for the tax benefits (VERY rare exceptions.), Incorporating them into your Plan with maximum impact is almost always a key factor in ultimate performance. (Think I sprained a finger typin’ that sentence. 
)
BawldGuy Axiom: In the long run the investor who doesn’t use all available strategies when creating and executing their Purposeful Plan pays a bigger price for inferior results.
The following are just a few of the questions to be answered when discussing taxes/tax shelter and real estate investing. First though, let’s agree on a layman’s definition of depreciation.
It’s what many call a ‘paper loss’ which allows for the aging and physical deterioration from usage, obsolescence, passage of time, or just simple wear and tear. There is no actual loss of money — which is why it’s commonly called a paper loss. Read the rest of this entry »
Posted on November 18, 2009 @ 3:03 pm - Written by BawldGuy
As a hired gun many moons ago I used to do after tax cash flow ‘autopsies’ on investments for attorneys representing either investors or other real estate agents/brokers. I’d produce historic rates of return, almost always expressed as IRR — Internal Rate of Return. I’ve explained IRR, in court, the following way.
It’s that rate of return, which when discounted back to Day 0 equals the original amount invested. (In ‘analyst speak’ that means Net Present Value (NPV) = 0.)
The court accepted the data I was given was correct in those cases, since most of it came from escrow closing statements, CPA’s, management company reports, bank statements and the like — they were relatively reliable numbers.
In one case I was grilled for over 20 minutes about holding periods. It was literally one of the dumbest 20 minutes the judge ever had to endure going by his facial expressions. For me though it was live entertainment. Read the rest of this entry »
Posted on November 17, 2009 @ 6:57 pm - Written by BawldGuy
This might turn out to be a short series, so if it seems there should be more info, your instincts are right on. There’s so much for the new investor to know. Let’s begin by invoking one of my all time favorite axioms.
BawldGuy Axiom: It’s hardly ever the answers to your questions that end up producing dire consequences. It’s usually (80/20 rule?) the answers to the questions you never knew to ask that end up ruining your day.
I’ll assume you either A) Have the necessary capital to acquire your first property(s) or B) The equity/assets to provide it. Most folks without the hard cash, tap into their home’s equity — if it’s prudent under their unique circumstances.
First, let’s get some myths out in the open. Read the rest of this entry »
Posted on November 13, 2009 @ 9:11 am - Written by BawldGuy
Sorry for not posting yesterday, as the day got away from me. Between takin’ care of Mom’s needed visits to her eye surgeon (recent cataract removal/lens implant) and attending what’s known as a real estate ‘barcamp’, my day began at 6 AM and ended at 9 PM when I finally landed back home. The checkup couldn’t have gone better, as Mom’s eye, sans blinders plus the newly installed custom designed lens has reopened the world she used to know. Still can’t believe she was driving, but that’s another story. Geez.
A barcamp is a gathering of experts, in this case real estate related. TechnoGeeks talk about the web, design, various marketing techniques and the like. Brokers/agents do the same but for real estate in general. Blogging is, of course, a hot topic. Contrary to what you might think, only about 2-4% of the agent population blogs or has an active website worthy of the name. When it comes to technology, most in my industry haven’t moved beyond about 1990’s or so. Read the rest of this entry »
Posted on November 10, 2009 @ 6:09 pm - Written by BawldGuy
Let’s say you bought a couple smallish income properties recently. Ya put 20% down, and got a 30 year fixed rate loan for 6.25%. Between the two of ‘em you’ll be cash flowing, give or take, around $6,000 a year. The total of the two loans are are $400,000. Assuming you have an abundant Sominex Account, and you’re investing for capital growth, that cash flow is gonna just sit around collecting not much more than dust.
You know that money isn’t gonna garner anywhere near 6.25%, especially after tax, right? Right. So go all Old School on yourself. Take $500 a month and apply it equally to the principal of the two loans. Here’s what you’ll reap in say, a 5 year holding period.
First of all you’d wanna know what the loan balance would be if you just paid the payments. In this case, your balance after 60 payments would be $373,350. However, if you added the unneeded cash flow to the same 60 payments at $500 a month, your balance would be (drum roll) $338,240 — about $35,000 more in sales proceeds. Read the rest of this entry »