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.