Friday, December 14, 2012

Saving Your IRA from the Dreaded Cliff

Last month, I published an article about opening a SDIRA to beat the fiscal cliff. It's here, if you'd like to read it.

Now it's mid-December, and I am hearing from people wondering if it's too late to open a SDIRA in 2012 and move everything into it before the world ends on January 1, 2013.  I believe that your chances of completing all the activities to form a SDIRA with checkbook control and then transferring your financial-product IRA's assets into the new one are slim. A SDIRA must be properly formed, and then a custodian-to-custodian transfer must take place so the funds are not taxed. This takes time, and the custodial transfer can take weeks.

Given this, what is one to do? Here are a few suggestions:

1) Go ahead and start the process of setting up a SDIRA. You'll need it eventually, even after the cliff does whatever it's going to do.

2) Understand that there is nothing wrong with cashing out of your long-term positions now (and taking the tax hit on non-IRA assets in 2012 while you know what the tax rates are).

3) Understand that there is nothing wrong with having a pile of cash sitting around earning nothing for a few weeks while the market gyrates around as you wait for your SDIRA to be set up.

4) Accept the fact that you don't know what the market's going to do. Nobody does. Accept the fact that Congress doesn't know what it's going to do about the cliff.

5) If you decide to stay in the market and ride out the cliff, be sure you have an exit strategy in case things go wrong. Remember, most brokers are great at riding a rising tide, but few know how to react in a falling market.

Take this free advice for what it's worth - free advice. I'm not a professional broker or financial planner. I'm just someone who got caught in the last market free fall, and finally understood that nobody cared more about my money than me.

Screening Tenants and Getting Commitments

One of the most important - and frustrating - things about being a buy-and-hold residential real estate investor is in finding good tenants for your properties. Please note, I am not speaking about answering late-night calls about clogged toilets or chasing down rent checks; this is about the initial process for screening people and securing commitments.

At least one component of this has gotten much simpler, thanks to the credit reporting agency TransUnion. Those folks have come up with a product for landlords and tenants alike called the "Smart Move" application. Check it out at In this elegant application, the landlord sets screening parameters for the type of tenant he wants to attract into the property; once he finds a prospective tenant, the application invites the prospect to apply for the rental. The prospect inputs his contact info, social security number and so forth, and the computer screens the info. In the end, the landlord gets a go or no-go decision based on the prospect's credit score and arrest record.

The cost for this is relatively low, around $30.00 per incident. The landlord can choose to have the prospect pay this fee if desired. I like this, because then only serious people will spend the time and money. One of the beauties of the system is that the tenant's social security number is not revealed to the landlord. I like this security feature, and so do prospective tenants.

By the way, I do not get paid by TransUnion for promoting this product; I simply think it's pretty nifty and want to save others some headaches.

So, let's assume that you want to rent to this prospect. How do you get him to commit to you without wasting your time and tying up your property while he keeps looking for something better or cheaper? Money! I'll write more about this subject in another post.

Friday, October 5, 2012

Are the Best Barginas Gone?

An article in USA Today this week discussed the recent rise in home prices. The story cites CoreLogic, a major real estate market researcher, saying that prices rose 4.6% in August from a year ago. Other reports on housing prices are in line with this report. And in my own research, I have seen a slight increase in prices as well.  Does this mean that the days of real estate bargains are coming to an end?

I don't think so. I believe we are seeing an artificial tightening of supply, which serves to edge prices up. This is caused by many things:
  • Extremely low interest rates allow the people who are able to borrow money to buy.
  • The enormous shadow inventory - those homes that the banks own but haven't put out on the market yet - hasn't flooded the market but is being released in barely a trickle.
  • The rental market continues to be robust, so more and more people are renting out their homes rather than trying to sell them on the cheap.
  • An important Presidential election is close by, and a bump up in real estate prices helps the economy look better (again, think of that shadow inventory and ask yourself why those properties are being released so sparingly).
What this means for regular folks who want to get into real estate investing is that it's harder to find great deals today than it was, say, a year ago.  And while it's more difficult, it's not impossible if you have the right education, professional connections, and preparation.  I have written many posts on this very subject, such as this one:

That's all good stuff, but one important attribute of the successful real estate investor that's not covered in this article is patience. A buyer must be patient and wait for the best deals. A good real estate deal is kind of like waiting on a bus . . . if you miss one, don't worry because there will be another one along soon. It pays to patiently wait for and diligently pursue only those deals that will pay you over time. This is true whether you're thinking about buying a property just because you have money burning a hole in your pocket, or whether you're thinking about approving a questionable tenant just to get someone into your rental property.

So if you see a screaming deal that you really want because you know it'll work out, then by all means go for it. But if you feel like you've been looking at deal after deal after deal but they just don't seem all that great, you're not alone. Just be patient. Because those hidden gems, those great bargains that we used to just pick up off the sidewalks, are still out there. They're just harder to find now.

And be patient to see what the overall market is going to want to do. Are we at the bottom? Is it heading up or will it head lower next year? Nobody knows. But if you are properly prepared and fully educated, you can ride the wave no matter how it goes.

Contact me if you would like to discuss this or any other post. Happy hunting!

Monday, August 27, 2012

Getting Back in the Game

I recently published a new story about being prepared to take advantage of real estate deals at the end of the year. You can read it here:

While it's great to snag a year-end bargain, you still need to be sure that the property will rapidly flow cash for the investment to make sense. Alternately, you need to be sure that you have the financial depth to wait out a slow period. I like buying rental properties at the beach, and the seasonal aspect of the business is ever present in planning for a purchase. The HOA fees, taxes, insurance and basic utilities must be paid whether there's anyone in the rental unit or not. These expenses can add up quickly and turn what you thought was a bargain into a white elephant.

This may or may not be a factor in the area where you want to invest. The main thing is that you need to do your research, know what you're getting into, and be prepared for the worst. If the worst happens, then you know you can ride it out. And if the outcome is good or better, that will take care of itself.

Donald Trump said it best:

"There are a lot of ups and downs, but you can ride them out if you’re prepared for them.
Learning to expect problems saved me from a lot of wasted energy, and it will save you from unexpected surprises. It’s like Wall Street, it’s like life. The ups and downs are inevitable, so simply try to be prepared from them.

Sometimes I’ll ask myself why I want to take on some new, big challenge. A substantial loss is always a possibility. Can I handle it if it doesn’t go well? Will I be asking myself later, Why did I ever do that? What was I thinking? I’m actually a very cautious person, which is different from being a pessimistic person. Call it positive thinking with a lot of reality checks."

Have a great day, everyone!

Thursday, August 2, 2012

Why Timing and Preparation Matter

I recently published an article about opportunity meeting preparation; here’s a link if you missed it:

As the end of summer approaches, I start getting excited. I know that my favorite real estate market will soon be flooded with deals, and I am prepared to act on the opportunity.

Market gurus tell novice investors that they should not try to time the markets. They would rather have you throw money at the market, hold your breath, and hope for the best. And I listened and followed this advice for years. After all, they knew best, didn’t they?

But after months of simply taking my beleaguered brokerage statements out of the mailbox and stuffing them in the shredder without opening them, I decided to change my victim mentality and take control.  I decided to get into real estate investment.

Do not for a moment think that real estate investment doesn’t have risk. Real estate prices go up and down – anyone with a pulse knows that. Whether you’re buying a stock, futures contract, or a piece of real estate, you must buy it right, sell it right, have an emergency exit strategy in case you’re wrong, and remove the emotion. With preparation – education, planning and experience - you can time the real estate market to make intelligent buy and sell decisions.

I like buying and selling down at the beach because I have found a profitable niche, plus I am able to time the markets.  If you would like to learn more about finding the right niche, please send me a direct message at

When it comes to market timing, real estate at the beach or other seasonal locales offers some unique opportunities to find deals. During the peak season, all the tourists are enjoying the beach, golf and great seafood restaurants, truly being seduced by the charms of the location. These tourists are the perfect suckers for time share developers. But the seasoned investor knows that while peak season may be a great time for research and investigation (maybe with a bit of vacation thrown in for good measure), it can be a poor time to try to find a real deal on real estate.

The savvy investor knows that once the peak season is over, the sellers will start dumping inventory on the market at a time when the novice buyers are going away. This investor also knows that the end of the year presents great opportunities for bargains from those sellers – often banks – that absolutely must get rid of a property before the end of the year. 

For new investors who want to get into real estate, the most important thing to do right now is to get educated and get prepared. If an investor wants to start a checkbook self-directed IRA, he needs to get it set up now so he can take advantage of the deals when they happen.  There are many options for SDIRA setups. I can help steer you through the maze.

Have a great day, everyone!

Monday, July 30, 2012

Outsourcing for Passive Income in a Roth SDIRA

The last post on this blog discussed ways to invest in real estate with a SDIRA. And as many people have sizeable accounts in their company-sponsored 401K accounts, which may be transferred to a tax-deferred SDIRA, real estate investments can be easily afforded.

However, real estate is often out of reach for people with a tax-free Roth IRA; because a person is limited to a maximum contribution of $5,000.00 per year, it takes a while for that Roth to build in value to the amount needed to acquire a piece of real estate. 

While the Roth SDIRA may not be able to buy an individual piece of real estate, it may be able to partake in a real estate investment trust (REIT) or real estate syndicate, along with other investors. One of the key advantages to these options is that the IRA holder can enjoy the benefits of the real estate investment in a passive fashion; he is effectively outsourcing the daily management duties to someone else. The drawback is that because the IRA is participating with others, its investment is not individually secured by a unique piece of real estate. As everyone knows, the value of real estate can go up or down, so it is important to be very sure of how the investment is secured – or not.

Another option for a Roth SDIRA to make money is by buying a business; some low-cost business startups involve multi-level marketing opportunities, or MLMs. In fact, none other than Robert Kiyosaki of “Rich Dad, Poor Dad” fame is a fan of MLM opportunities for business people. Some popular MLM companies include longstanding brands like Avon and Amway; newer entries in the field include the popular Beach Body brand, which includes fitness products advertised heavily on television such as P90X, Insanity and TurboFire workout programs.

And while these are all solid companies, they involve one primary problem for the SDIRA – the income from them must be passive (see prior post on “passive income” for definitions). And it can be difficult, if not impossible, to be passive and succeed in a MLM environment

One thing to consider is the prospect of teaming in a MLM business, in which the Roth SDIRA puts up the start-up money and another individual performs the day-to-day activities in the business. Once the Roth makes its initial money back, the business would share the profits.
If you would like to discuss this possibility, please send me a direct message at Please note that this article is for information purposes only, and is not an offer of a security or investment in any way, shape or form.

Sunday, July 22, 2012

Passive Income for the Self-Directed IRA (SDIRA)

Anyone who knows me already knows that I am a big fan of the truly self-directed IRA, also known as a “checkbook IRA.” In addition, I am a fan of using the SDIRA for real estate investment. This involves a few challenges that need to be considered, as explained in the article below:

Earlier this year I began RI Group, LLC, a South Carolina company that uses its own money and resources to help others buy, hold and sell real estate to generate passive income. I formed the group with the novice real estate investor in mind, although anyone is welcome to participate. When forming the group, I asked myself the following questions:

  • What if a person wants to invest in real estate, but has all of his money tied up in his IRA sitting in a brokerage account?
  • What if someone is intrigued by real estate investment, but has not bought or sold anything beyond his primary residence?
  • How can a SDIRA make passive investments in real estate that are secured, without paying a fortune in fees?
  • What is a good niche market for the SDIRA holder to make a solid and steady return?
  • How can someone know who to trust?

Most of these questions involve FEAR – the fear of loss, fear of being taken advantage of, fear of market gyrations, and self-doubt due to inexperience. RI Group aims to overcome these fears in two key ways: we partner with the investor and put real money into the deal; and we work with a solid experienced team of real estate professionals, attorneys and CPAs to be sure that things are done right. 

Please note that RI Group, LLC does not offer or sell securities or investments, and is not a licensed real estate broker. Instead, it seeks to partner with people that want to make money in real estate. It is important to consider that real estate values can and do fluctuate, and there is no guarantee of a return. Maybe that’s common knowledge, but it still needs to be said.

If you need some background on the SDIRA, please read these short articles that explain the concept succinctly:

If you would like to learn more about this process, please send me a direct message at

Thanks for reading.

Wednesday, July 18, 2012

Why "Passive" Income?

We constantly read and hear that passive income is best. But what exactly is passive income, and why is it so important?

Investopedia defines passive income as "earnings an individual derives from an enterprise in which he or she is not actively involved." Wikipedia calls it "income received on a regular basis, with little effort required to maintain it." Author and speaker Robert Kiyosaki speaks of the need for people to be able to support themselves through passive income generated through systems such as real estate and business ownership. Simply put, passive income is when your money works for you.

Most people work for money. We go to a job, and we get paid after Uncle Sam takes his share. Then we get to pay our bills. And finally we get to keep whatever is left. Now think of a big corporation, the ultimate passive income machine. The corporation invests its money, and sits back while lots of good people work all day to generate income for the corporation. At the end of the day, the corporation pays its workers and pays its bills. Then Uncle Sam steps in and takes his share. The corporation gets to keep what's left - and it's passive income.

Passive income is great for many reasons, and I will be highlighting them throughout this blog. For a taste of what's to come, here are some initial reasons why every individual should be figuring out how to make generating passive income a way of life:

  • It provides a way for you to save on taxes in complete compliance with the IRS.
  • It allows a person to not need to depend on a fickle employer for his livelihood.
  • It is the only way in which a person can use his self-directed IRA (SDIRA) for investment income.
I will be spending a good bit of time explaining how a person can generate passive income for his SDIRA - traditional and/or Roth. What's a SDIRA? I have written several articles on what I believe is the best-kept secret that Wall Street has over most hard-working Americans. For homework tonight, read up:

Thanks for spending time with me. I welcome your comments.