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Michael Morrow - Real Estate Resources for New Investors

Real Estate Resources for New Investors

If you want to be a successful real estate investor, then you have to do your research and build up your knowledge base. With so much information out there, though, you might not be sure where to start. Which resources are worth pursuing and which resources should you avoid? Below are some of the top real estate resources for both new and veteran investors alike. While this isn’t a complete list, it is a great starting point as you walk down the path of real estate investment.

Real Estate Listings

The obvious first step to becoming a real estate investor is actually purchasing a property, and you can’t purchase a property if you don’t know what’s available. Today there are numerous websites that feature local real estate listings. Zillow and Trulia are two of the most popular. Zillow is particularly useful because it gives you access to various helpful statistics that will give you more insight into particular neighborhoods.

Property Assessments

Property assessments are essential to understanding the true value of a property as well as how much of your money will go toward taxes. In many cases this information is online, but it can be difficult to locate. Patriot Properties and Vision Government Solutions are two helpful sites that feature extensive databases of property assessments. State & Local Government on the Net is another resource that can help you find property assessments for a particular area. The site doesn’t actually list the property assessments, but it lists local government websites by their particular topics.

Trends

If you want to be a knowledgeable real estate investor, then you should have some awareness of what’s trendy in home design. Houzz focuses on highlighting the latest trends in home design. The site is a great resource for inspiration. Plus it features a database of local professionals who you can hire to do repairs, interior design, and other services.

Books

One of the best ways to increase your real estate knowledge is to read a book. Here is a list that will help you get started. It features seven of the best books for new investors. One book that’s not on the list that you should still check out is Real Estate Finance & Investments written by William Brueggeman and Jeffrey Fisher. The book is currently in its fourteenth edition, and it’s used in college classrooms around the country. After reading the book, you will definitely feel more comfortable with the entire investment process.

Michael Morrow - Done For You Real Estate

Done For You Real Estate

Investing in real estate is one of the best decisions you can make with your money. However, there are many hurdles that you will need to jump over in order to get started. One of the biggest hurdles that investors face with real estate is securing enough cash to purchase a rental property. Homeowners know how difficult it can be to accumulate a twenty percent down payment for a home. Saving money for a rental down payment is just the same. While real estate has significantly less risk than other forms of investment, there is still the risk that you can’t find someone to rent your property. Then you would be responsible for paying monthly payments on two properties at the same time. Partnering with others to purchase property is one of the best strategies that first-time real estate investors use.

Done For You Real Estate

Done For You Real Estate (DFYRE) is one organization that removes many of the headaches associated with real estate investment. For example, managing the property itself can be one of the most time-consuming aspects of real estate investment. It’s especially a burden if you have multiple properties and work a full-time job at the same time. DFYRE takes care of this issue as well as many other issues related to real estate investment.

The organization finds the best markets and the best houses for you. Then it does the necessary repairs to get them prepared for renters. Once the houses are ready it does all of the legwork associated with finding renters. Finally, it manages the properties so you don’t have to worry about ongoing repairs or any other related issues. All you have to do as an investor is provide the capital, and DFYRE provides all of the services. Since the organization began in 2007, it has helped investors receive a 20+% return year on year. In particularly hot markets you can expect a conservative income of $3900 per house for each year that you invest in the program. The potential equity growth of 3 – 10% is just a bonus.

Learn More

If the DFYRE system sounds attractive to you, then you should watch this video to learn even more. You can also visit the DFYRE website to download a free kit that has even more information. One of the founders of the organization is named Kris Krohn. He began investing in real estate when he was 23 years old. By the time he turned 26 was able to earn a passive income of six figures. He is very knowledgeable about real estate, and his system helps investors get involved in real estate in a turnkey manner.

Michael Morrow - Learn More About Sequence of Return Risk

Learn More About Sequence of Return Risk

One of the biggest concerns that retirees have is whether their nest egg will be large enough to support them during retirement. The worst case scenario that every retiree fears is experiencing a market downturn just as he or she is ready to enter retirement. Since retirees need to draw from their retirement portfolio in order to live, they must be aware of and prepared to deal with sequence-of-returns risk.

In my article Jack Bogle Warns: Prepare for Two Massive Market Declines in The Next Decade, I wrote: “In simple terms, sequence of return risk means that in retirement, it can be more critical when you get returns than what returns you get.” Investopedia defines sequence-of-returns risk as “the risk of receiving lower or negative returns early in a period when withdrawals are made from an individual’s underlying investments. The order or the sequence of investment returns is a primary concern for retirees who are living off the income and capital of their investments” (Investopedia – Source).

While investors don’t have to worry about sequence-of-returns risk before retirement, it becomes a big issue during retirement. If you plan to retire soon and you want to limit sequence-of-returns risk, keep reading for some tips and strategies.

Limit Risk

When you make risky investments there’s always the chance of losing your money. For example, if your portfolio only includes stocks you’re at the mercy of the market. If your stocks take a beating and you continue to withdraw money from your portfolio, you make it difficult for your portfolio to recover. At Aspen Creek Wealth Strategies we recommend a “risk bucket” strategy based on the rule of 100. If you are 65 years old then 65% of your portfolio should go into a safer bucket of assets. You can put the remaining 35% into a riskier bucket. Investors can increase their chances of a successful retirement by making wise investments and avoiding unnecessary risk.

Lower Percentage of Stocks

Another strategy to consider: during the first years of your retirement your portfolio shouldn’t include a high percentage of stocks. Over time, though, you can increase the percentage depending on the risk you feel comfortable taking. The first years of retirement are the most important. If you withdraw too much money or lose too much money as a result of risky investments, you’ll make the rest of your retirement difficult.

Don’t Overspend

One of the easiest ways to protect your retirement funds is to only withdraw the amount that you actually need. Ask yourself before making a big purchase, “Is it really necessary?” Every retiree wants to enjoy their retirement, but you don’t need to carelessly spend your money to enjoy yourself. If you withdraw your money wisely you’ll help ensure it lasts you and you don’t outlast it.

Michael Morrow - The Dangers of Buy and Hold

The Dangers of Buy and Hold

In general “Buy and Hold” is an investment strategy where stocks are purchased and then held on to regardless of how the market performs. While the Buy and Hold strategy has many supporters who believe it is the best investment strategy, the reality is that the strategy has many drawbacks. The strategy is especially dangerous as a retirement strategy. Some investors who are averse to risk think that Buy and Hold will limit the risk they face. Unfortunately, this isn’t always the case. Keep reading to learn more about the disadvantages of Buy and Hold for retirees.

Market Downturns

The biggest disadvantage of Buy and Hold is dealing with market downturns. If the market crashes or there is a recession, you stand to lose a lot of money. For retirees, this is especially dangerous because they don’t necessarily have the time to “hold” as the downturn corrects itself. Imagine if the market experiences a downturn a year before you plan to retire. If all of your gains are erased, how will you make retirement work? Jack Bogle can preach Buy and Hold because he has enough money to tolerate heavy losses. However, normal investors may not have the safety net that Bogle has, so Buy and Hold isn’t the best strategy for them.

Length of Time

In order for Buy and Hold to work, an investor needs time. Yet if an investor chooses the wrong stocks and holds on to them year after year, he or she may not see any significant gains. Many Buy and Hold supporters recommend investing in index funds to avoid selecting the “wrong” stocks. However, even index funds are susceptible to events like market crashes. Today many Americans aren’t preparing for retirement soon enough. Therefore, they might not have the necessary time to employ a Buy and Hold strategy and see any meaningful returns by the time they’re ready to retire.

Self-Discipline

A large number of investors lose money due to their emotions. They either chase stocks that they believe will make them rich in the short run, or they sell when their stocks underperform. However, the Buy and Hold strategy requires an investor to ignore the urge to sell or buy whenever it strikes. Every investor finds it difficult to ignore these urges at various times. When it comes to savings for retirement, safety is the most important element. Yet if risk is managed correctly, it can be beneficial to a retiree’s investment strategy.

There are many alternative investment strategies to Buy and Hold that offer retirees more security and better returns. To learn more about the disadvantages of Buy and Hold as well as some alternatives read my article Jack Bogle Warns: Prepare for Two Massive Market Declines in The Next Decade (But Heeding His Advice Could Destroy Your Retirement).

Michael Morrow: Self-Directed IRAs vs. 401(k)s and Traditional IRAs

Self-Directed IRAs vs. 401(k)s and Traditional IRAs

When most people think about retirement savings they think of 401(k)s and IRAs. However, another option to consider are self-directed IRAs. While self-directed IRAs share a lot of similarities with 401(k)s and traditional IRAs, there are some important distinctions to consider. What sets self-directed IRAs apart from other options, though, are the variety of investment options available to you. Keep reading to learn more about the benefits of self-directed IRAs as well as some of the drawbacks of 401(k)s and traditional IRAs.

401(k) Drawbacks

  • There are numerous fees associated with 401(k)s, and most people don’t realize how much they’re even paying. Most of the time the fees aren’t even listed on your account statement. Over time these fees eat into your balance.
  • If you withdraw money from your account before the age of 59 ½, you’ll face penalties. Unfortunately, life doesn’t always go as planned. You might need to withdraw money due to divorce, job loss, or some other unforeseen circumstance. Take a look at this post to learn more about early withdrawal fees. In addition to the penalties, you will also have to deal with taxes. Any money taken out before the age of 59 ½ will be taxed as regular income.

IRA Drawbacks

  • Every IRA plan has contribution limits. If you contribute too much to your account, you will have to deal with IRS penalties. The penalties vary with age. For example, if you are under the age of fifty and you contribute too much, you’ll face a maximum penalty of $5,000. This article has more information on excess contributions.
  • When you reach the age of 70 ½, you have to withdraw funds from a traditional IRA account regardless of whether you need the money or not. Failing to withdraw the funds results in a penalty—typically a fifty percent tax on the minimum amount that was supposed to be withdrawn.

Self-Directed IRAs

A self-directed IRA is often a better option for investors. With a self-directed IRA, you can include assets like real estate rather than the traditional assets that most IRA accounts allow. Self-directed IRAs also offer tax benefits that aren’t available with traditional retirement options. As with every investment self-directed IRAs are not risk-free. However, investors who choose self-directed IRAs select assets that they understand well, so they are aware of the risks associated with the assets held in their self-directed IRAs.

Michael Morrow: How to Use Home Equity to Invest in Real Estate

How to Use Home Equity to Invest in Real Estate

If used properly you can take your home equity and transform it into an investment. Many people make the mistake of accessing their home equity for the wrong reasons. For example, using your home equity so that you can go on a lavish vacation or purchase an expensive car is just about the worst thing you can do. However, there are ways that you can leverage your home equity and put it to work as an investment. Specifically, if you use your home equity to invest in real estate, you can generate extra cash and set yourself up for retirement. Keep reading to learn more.

Line of Credit or Loan

When most people think of home equity, they think of home equity loans also known as second mortgages. Loans are popular options due to their low rates and favorable terms. However, there isn’t much flexibility with loans. You’re given the loan amount, and then you have to start paying it off. On the other hand, a home equity line of credit gives you more control. There is a maximum amount available to you, but you decide how much to take at and when. This way you don’t owe interest on money you don’t withdraw.

Risks

There is risk associated with every investment. Using home equity debt to invest in a property is no different. If there are issues with the investment property that cause you to miss payments on your home equity loan, you could end up losing both properties. Before you take out a home equity loan, make sure you are aware of the risk and you have a plan to continue paying even if something goes wrong.

Taxes

Home equity loans and lines of credit can usually be categorized as itemized deductions. As long as you don’t have to pay the Alternative minimum tax, you will be able to deduct up to $100,000 of your debt. When you use your home equity to purchase a rental property, though, you can list your debt and the rental property price on Schedule E. To learn more about Schedule E take a look at this link.

Buying Investment Property

Before you purchase an investment property make sure you have a plan to take care of potential home repairs. You should also have a good amount of money saved up to deal with such expenses. Having extra money saved up also comes in handy when you have trouble finding tenants to rent your property. While it is tempting to buy a cheap fixer-upper, sometimes they can be more work than they are worth—especially if you are inexperienced with rental properties and repairs.

Michael Morrow: 3 Conversion Strategies That Can Minimize Taxes In Retirement

3 Conversion Strategies That Can Minimize Taxes In Retirement

When it comes to being prepared for retirement, the majority of Americans are not in good shape. A recent study found that “less than one-third of Americans are saving money in their 401(k)s and other workplace retirement accounts” (Bhattarai). Even if you are prepared for retirement, you may be shocked by the amount of taxes you owe once you start using your retirement funds. To learn how you can minimize your taxes during retirement take a look at the below strategies.

IRA Conversion

One of the simplest ways to reduce your tax burden during retirement is to convert your traditional IRA or 401(k) to a Roth IRA. When you make withdraws from a Roth IRA, you do not owe taxes on the amount you take out. Although it’s possible you may owe taxes when you convert to a Roth IRA, once you’re retired and make withdraws you’ll save money on taxes. Since you generally make less money during retirement, every bit of saved money helps. Most financial advisers recommend that you convert your IRA funds over the course of a number of years rather than all at once. This way you can keep an eye on your tax bracket and make sure you don’t enter a tax bracket that’s too high.

Home Equity Conversion

Using home equity as an income source during retirement is a strategy that doesn’t receive as much attention as some other retirement strategies. Yet it’s one of the best conversions to consider as you enter your golden years. Many retirees downsize during retirement and free up cash by selling their homes. By using a home equity conversion, though, you can stay in your current home and gain access to cash. One of the best strategies to consider is a reverse mortgage. To learn more about the benefits of reverse mortgages take a look at this blog I wrote last year.

Indexed Universal Life (IUL) Conversion

In the past, I have written about the financial benefits of IUL policies. In particular, IUL conversions offer numerous tax advantages that retirees should consider. While the policy gains money you do not owe any taxes. IUL policies also help protect you from the up and down nature of the market. The policy’s gains are linked with the market, but you don’t face any market risk since your money isn’t actually tied up in the stock market. To learn more about how an IUL policy can help you minimize taxes during retirement, I encourage you to read this article.

Learn More

Here are three more useful articles that I suggest you read to learn more about minimizing taxes during retirement:

Real Estate-Making Money Regardless of the Market's Direction

Real Estate: Making Money Regardless of the Market’s Direction

One of the most difficult aspects of investing is dealing with market volatility. However, when it comes to limiting losses there is one asset that stands out above the rest: real estate. The U.S. Census Bureau reports that the price of real estate has increased in a consistent manner since 1940. While the subprime mortgage crisis limited its growth for a couple of years, it recovered relatively quickly and continues to increase in value. Keep reading to learn more about the basics of real estate investing and how you can continue to make money when the market is down.

Why Invest in Real Estate?

The best time to invest in real estate is the present. As stated above, real estate investments have attractive returns over time and some of the lowest volatility compared with other investments. Real estate is a great choice to add diversification to your portfolio. Research shows that during bear markets when stocks are down real estate usually goes up.

Research

One of the most important keys to finding success with real estate is doing your research. Before you purchase any real estate you need to understand which markets will give you the biggest return. If you plan to rent out your property to individual tenants, you should make sure you purchase property in an area that’s attractive to renters. The area around universities is usually the best location to purchase property since student tenants will be available each year.

Decide Your Approach

Do you want to be a landlord, or do you plan to flip properties? There are advantages and disadvantages to each approach, so, again, you will have to do your research. When it comes to flipping properties, you also have some decisions to make. Will you refurbish homes before selling them, or will you search for undervalued homes in growth markets and sell them without making any improvements.

Find a Mentor

If you have never invested in real estate before, you should connect with experienced investors to learn some of the pitfalls to avoid. There is likely a real estate investor club in your area, or you can reach out to individual investors and ask to buy them lunch or dinner. Target investors who are active in the area where you are interested in investing. They’ll be able to provide you with the best insight.

Get Started

The easiest way to get started is to read more about real estate investing. Visit this link to see a list of some of the top real estate books.

Michael Morrow: Reduce Income Tax Burden

Top Strategies To Reduce Income Tax Burden

The 2017 tax season has officially begun. Most tax experts recommend filing as early as possible. Yet before you file your taxes it’s a good idea to take some time to think about the different strategies that can help you reduce income taxes. While there are numerous legal strategies that taxpayers employ to lower their taxes, this post will only look at a brief selection just to give you an idea of what’s out there. These tax reduction strategies are presented for educational purposes only. When filing your taxes it’s always recommended that you consult with a tax expert.

Reduce Earned Income Taxes

In a recent post, I discussed the various tax credits related to home improvement projects. In particular, adding solar panels to your home can greatly reduce your tax burden. Business owners have a number of strategies that they should consider to reduce earned income taxes. Below are two strategies that are worth highlighting.

  • Micro-Captive Reinsurance Company – Businesses that earn less than $2,200,000 of profit can utilize this plan to significantly reduce their tax burden. Read this article to learn more.
  • Employee Stock Ownership Plan (ESOP)  – ESOPs help reduce business owners’ tax burden by converting their business into a tax-exempt entity. While ESOPs have a number of tax benefits, they are also a great option for motivating employees. Visit this link to learn more about ESOPs.

Investment Taxes

Indexed universal life (IUL) plans have lower expenses than many other assets. They also don’t have any stock market risk and, historically, have a higher return than the stock market. There aren’t any IRS contribution or income limits associated with IUL plans like there are with Roth IRAs. To learn more about the benefits of IUL plans, read a previous post I wrote on the subject.

Estate Taxes

Estate taxes are especially damaging for high-net-worth families. There are three strategies that families should consider to reduce the burden of estate taxes: lifetime gift tax exemption, family limited partnerships, and irrevocable trusts.

  • Earlier this month Rande Spiegelman wrote an excellent article for Charles Schwab that explains lifetime gift tax exemption. You can read the article here.
  • A Family Limited Partnerships (FLP) is another strategy that’s used to transfer wealth between generations. A General Partner or Limited Partner manage the FLP’s assets. These partners can’t sell their interest, but they can transfer them to family members. Learn more about the details of FLPs at this link.
  • Once a grantor transfers funds to an irrevocable trust, he or she can no longer claim ownership of the assets. Grantors are able to dictate the rules or terms of the trust. This article has more details on irrevocable trusts.
Michael Morrow: Home Improvement

Home Improvement Ideas to Reduce Your Taxes

If you’ve recently remodeled your home then there’s a chance you can save on your taxes. In some cases, it’s possible to deduct renovation costs. You may even be able to receive a tax credit for some renovations. If you haven’t renovated your home but you’ve been considering it, take a look at the below ideas.

Make Your Home More Energy-Friendly

  • Solar – Adding solar panels to your home isn’t just good for the environment. Thanks to Solar Investment Tax Credits (ITC), you may be able to lower your tax liability by a significant amount. According to the Solar Energy Industries Association (SEIA), “the Investment Tax Credit (ITC) is currently a 30 percent federal tax credit claimed against the tax liability of residential (Section 25D) and commercial and utility (Section 48) investors in solar energy property”(Issues & Policies). After you install solar panels on your home, you can apply the ITC credit to your income taxes. This benefit may be used for up to 20 years. At the moment the tax credit is 30%; however, in 2020 it will drop to 26%. By 2023 the credit will only be worth 10%, and it will permanently remain at that amount. Therefore, right now is the best time to install solar panels on your residence. Visit the SEIA’s website to learn more about solar tax credits.
  • Simple Additions – Installing a new door or new windows that are energy-efficient are two simple ways to save on your taxes. Make sure that the products you purchase come with the Energy Star label. Also, the improvements need to be made in a home you own—not a rental property.
  • Larger Upgrades – Electric heat pumps, electric water heaters, and air conditioning systems are three upgrades that can save you a significant amount of taxes. Updating your roof and adding insulation are two other projects that can save you a lot of taxes. If you’d like to learn more, take a look at this TurboTax article that provides more details on energy tax credits. Also, if you’re interested in installing a large system like a wind turbine or geothermal heat pump, look into the Residential Energy Efficient Property Credit. Just like the ITC, this credit is worth 30%.

Other Renovation Ideas

If you recently purchased your home and want to make renovations, you can take out a larger mortgage to help pay for the renovations. The IRS will let you deduct mortgage interest. It’s also possible to wait to do the renovations. Home improvement loans are tax-deductible as well. However, it’s best to pay for renovations without using any loan if possible. While you can save some money on your taxes when you use the appropriate loan, you’re also responsible for the loan’s interest.

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