Selecting A Financial Advisor

Today's WSJ has a good piece on selecting a Financial Advisor. Since its a subscription site, here are the highlights.

Looking for an adviser? You've got to keep these five pointers in mind.

• Many advisers earn their keep by collecting commissions on the investments they sell. That means they have an incentive to get clients to trade and to buy the highest-commission products.

Your best bet: Use fee-only advisers, such as those who charge an hourly fee, a percentage of your portfolio's value or a fixed annual retainer.

• Most advisers have had little formal financial education. For instance, maybe 5% of brokers, financial planners and insurance agents have bothered to become a certified financial planner, or CFP, which has become the basic credential for any half-decent adviser.

To ensure your adviser is knowledgeable, stick with CFPs or, alternatively, folks who have qualified to be chartered financial consultants, chartered financial analysts or certified public accountants-personal financial specialists.

• Advisers don't necessarily act in their clients' best interest. This issue has been brought into sharp relief by the heated debate over the Securities and Exchange Commission's so-called Merrill Lynch rule. Under the rule, fee-based advisers at brokerage firms often aren't considered fiduciaries, meaning they are supposed to recommend products that are best for their clients.

Instead, they are held to a lower "suitability" standard, which means they are only required to recommend products that are a reasonable choice for their customers. To protect yourself, avoid advisers who won't commit to acting as a fiduciary.

• Many advisers offer investment advice -- and that's it. But there is much more to managing money than picking stocks and mutual funds.

You might also want help with your mortgage, college costs, insurance, taxes and estate planning. If so, before you sign on with an adviser, make sure the adviser is committed to assisting you with these other areas.

• Most advisers charge too much, especially when you consider the limited advice they offer. Whether you're paying fees or commissions, your adviser's services might be costing you 1% of your portfolio's value each year. Tack on the fees charged by the mutual funds and other investment products you end up buying, and your total annual tab might be 2% or even 3%.

Result: If your adviser recommends a balanced portfolio of stocks and bonds that returns 7% a year before costs, you could pocket less than 5% after all fees are paid.

That doesn't mean a good adviser couldn't garner you a better rate of return, while also helping you with the full array of financial-planning issues. But is your adviser truly helping your finances? Not sure? Remember, you can always buy Treasurys bonds instead. These days, that will also earn you around 5% -- with a whole lot less hassle.

Here's the original link

Update on the Attorney Meeting

In a previous post updating my oil investing, I mentioned I was going to see an attorney.

One of my partners [with whom I've deal a couple of smaller real estate deals] and I met for just over half an hour with an attorney. We've used this attorney before and he's really sharp [not to mention expensive].

He said it would be easier to file under SEC regulation 504, which provides exemption from regulation requirements. In that only accredited investors are usually allowed into such investments. It is possible to have non-accredited investors but you then need to disclose so much bad stuff that they'd probably shy away anyway, plus you're limited to only 35 of them, which doesn't make the preparation costs of all the disclosures even worth it. [Unless you want to do full-blown offering which we definitely don't want to becuase of the cost involved.]

If we have only accredited investors and we're raising under $1 million, we only need a subscription agreement and questionaire[stating that the investor is accredited] and a brief offering circular. [We don't even need to mention all the risks. After all, the government expects accredited investors to know everything about investing. How else could a person even become accredited, what with the government trying to tax the accreditedness out of them!]. We may not even need a Private Placement Memorandum which is a thick book full of disclosures.[disclosures are nothing but worst case suggestions about how you're going to lose your money.]

I asked my attorney what happens if a non-accredited investor claim's to be accredited investor just to get in. He said if we know that a person is non-accredited then we cannot accept their money at all. [Although they face no penalties for lying other than they can't go crying to the SEC saying we didn't disclose all of the risks!]

We're not supposed to publicize this to people we don't know, so if you don't already know who I am, don't even ask me for more info! I'm only posting this for information purposes and to give other investors an idea of whats involved. Incidentally, Kiyosaki's book, Retire Rich, Retire Young where I first read about accredited investor status and SEC regulations regarding the disclosures of certain investments. Didn't think I'd ever need that knowledge! That was the book the gave me the impetus to stop reading books on real estate investing and finally take the plunge. Like all of Kiyosaki's books, its low on strategy and high on motivation [although less so than the others].

Lets see how things work out. One things for certain, whether or not we make any money, our attorney sure will!

Here's a somewhat related and very interesting topic on Starting Your Own Hedge Fund.

Vonage Saves Face Over IPO

In a bid to avoid trying to lose customers who bought into Vonage's IPO, Vonage has told its underwriters that it will cover the cost. If customers no longer want the stock that opened at $17, closed at $14 and is now $12.50, then Vonage will agree to purchase those shares.

I think its a good show of faith on Vonage's part and it makes good business sense too. [Although offering customers a part of the IPO wasn't.]

Why Reputation Is Important

Everyone always admires those people who do the right thing no matter what the consequences. Conversely, people despise those who lie, cheat and con their way to wealth. After a certain point in life, it doesn't even make sense to be dishonest.

There are two articles today about this. Enron's top execs Skilling and Lay were both incredibly wealthy before the Enron mess. Their personal fortunes, upwards of $50 million each were enough to live a great life without the additional 100's of millions in Enron stock. Now both are faced with spending their retirement years in prison and having their wealth depleted by legal fees and fines. McAfee's general counsel Kent Roberts was also fired today for an improper options grant that occurred in 2006.

You spend your whole life building a good rep and it only takes one wrong step to mess that up. And atleast the fear of jail should keep people honest.The ramifications are particularly bad when white-collar employees embezzle money. The jail term is usually greater than that metted out to murders and molesters. Another good reason to keep your hands clean!

Bouncing Check Bounces Back

The tenant who's check bounced contacted me today. As I thought, they was out for the long weekend. He said there was enough money in the account and it shouldn't have bounced. He was quite surprized when I told him that I had personally gone to the bank with his check and they told me he was broke.[well they didn't say that exactly, but it means the same thing]

Anyway I'm stopping by the bank tomorrow and if they claim he's short again i'll have them call the tenants and figure it out there and then. But a tenant who's pro-active about following up when the landlord calls is a slightly better quality of tenant!

Incidentally, Washington Mutual now looks like a Starbucks. I hadn't been in one for 2 years and I was amazed at the transformation. I tried looking for a picture of the insides but I found this image at Tee Commerce instead. Much more fun!

Yet Another Oil Update

So far my investing has been going pretty good. [Apart from the small setback in the stock market crash of 2000.] I bought real estate in San Diego at the right time. I sold it at the peak. I got out of my other California properties right at the top too. I got into Salt Lake City right as it was about to take off. I bought some gold right before it made a 35% jump. So far I've been quite accurate at identifying investments trends and profiting from them.[Or maybe I've just been lucky!]

I've spent the past several months researching oil and gas and have even invested a bit in a small well and am about to invest in another one through my corporation's pension plan. I also think oil is going to be the next highly touted investment. I bet some washed-out actor like Eric Estrada will appear on late night ads promoting oil investments in the next 2 years.

Everyone knows that oil has jumped to $70 per barrel but most people don't know how to invest in it. Since I've figured out some of the steps and pitfalls, I think its time to capitalize on my knowledge. I'm planning on putting together an LLC with a partner which will pool in money from friends & family. Together we'll invest in several projects, thus lowering the risk.

Not only will I invest my money along with them, I'll take a small management fee. I'm thinking it'll be in the range of 30% of the profits after the investors get 10%. If I can't provide a 10% return then I really don't deserve any profit-split, right? Although most financial overseers don't agree with this philosophy, that was how Warren Buffet had originally set up his partnership. He got a 25% share of the profits after the first 6% was returned to investors.

Well I'm talking to an attorney about it tomorrow. I'll let you know what I find out.

Tenants Check Bounces

I got a bounced check in the mail from my bank. The tenants in one of my Salt Lake City homes had their check bounce due to insufficient funds. I went to their bank WAMU on Saturday to see if they had sufficient funds in their account. Unfortunately they did not. Atleast I didn't redeposit it and waste another 2-3 weeks finding out whether it would bounce again.

I called and left them a message. They've probably gone out for the long weekend. On Tuesday, I'll have to have my guy stick a 5 day eviction notice on their door. Pay up or move out. The good thing about Utah is that its a landlord friendly state. It takes 2 weeks to evict a tenant, and most of the time the tenants don't even stick around that long. They just move out.

It never pays to be nice to your tenants. They just take advantage of you. Remember your tenants are not your friends. You are not in the welfare business. If they can't pay their rent, they need to ask Uncle Sam for help.

How To Make Your Playboy Subscription Tax Deductible!

Ever wondered how you can deduct your Playboy magazine subscription on your taxes? Well neither did I, but read on anyway.

Doug of The Strategic Investor has a great post on Amy Sue Cooper, the Playboy Playmate who beat Mutual Fund managers at picking stocks. So now you can claim you read Playboy for the financial advice!!!

Bloggers Make It Rich

Here's a really good article about bloggers who made it big.

Most Bloggers make money from click-through advertisements, monthly flat-fee advertisements and occasionally from a big company and buys them out for a big chunk of money.

Blogs are replacing magazines and in some cases even newspapers. Not surprizing that some blogs are charging the same rates as newspapers do for advertising.

Who's Been Using Your Social Security Number?

I had a really nice house being built in St. George, Utah. Now that the house is finished, I need to refinance a construction loan into a regular loan otherwise the interest rate jumps to 18% or higher.

Unfortunately my mortgage broker called me up to tell me that someone else's name is attached to my social security number and I need a letter from Social Security Office proving that its my number.[and not some random number I just made up since I crossed the border last week?]

Thought it was going to be a big hassle, but it turns out it wasn't too bad. Got it in an hour and faxed it off. The guy behind the counter said the credit bureaus sometimes make errors typing in stuff. It probably wasn't a case of identity theft. Besides, with the 20+ mortgages in my name, no one can get a loan to buy anything with my credit!

Hopefully the letter should be enough. I hope the underwriter doesn't deny the loan. I can't afford to pay 18% on a 320k loan!

My Blog Has Doubled In Value

As previously mentioned, this blog used to be worth just under $7,000. Now I found that its value has doubled in the past 6 months to just over $14,000.

My blog is worth $14,113.50.
How much is your blog worth?

Of course, changing the code, makes it worth even more!

My blog is worth $1,400,113.50.
How much do you want your blog to be worth?

1031 Exchange Or Not?

I'm selling a property I bought in Salt Lake City. It was the first property I bought there and I made a few mistakes on it. Not only didn't it have front landscaping, it had rubble in the front yard and subsequently had 3 foot weeds growing there.

Also had a run of bad luck with tenants. They kept moving out!

Finally I got bored and one of the cousins of my ex-tenants got his friend to put an offer on the house. I think the house is worth $260,000 less $9k for landscaping or $251k. He put an offer for $242.5k which is more than I'd fetch if I would have listed it with a broker so I took it. Considering I bought it for $210k, that a nice 32.5k profit less around 3-4k in vancancies, or roughly around 28k. Plus I get my 10% downpayment back.

Its a good time to be getting a check for around 50k!!! I have several oil deals I want to invest it in.

Now my problem is whether I want to do a 1031 exchange on this property. If I do, I don't pay tax on the proceeds, but I also tie up my 21k downpayment for a long time.
In a 1031 exchange you DO NOT get to pull your downpayment out of the deal. Plus I may not be able to invest in the oil deals - it has to go into real estate deals, which most of the oil deals will not [although oil deal sometimes can qualify as real estate deals and be eligible for 1031 exchanges. The downside is they're more expensive to get into and that eliminates any advantage of not paying taxes].

Since I have several properties at this point, I have roughly 45k in depreciation losses. Since my maximum passive loss is capped at 25k, I have 20 to offset against passive profits or the 28k I'll be making off this deal! That way I get my 21k back and I pay taxes on the remaing 8k, or roughly $1,200! I can live with that. Plus I'm still carrying over 15-20k of losses from the stock market crash of 2000! So I probably won't end up paying any tax on the profit.

And the sweet thing is the investor actually took over the lease-option agreement of the previous tenant and is paying rent until the loan closes! Of course I charged him a $2k assignment fee which helps mitigate my vacancies.

Taxing The Rich

The Minor Thoughts Blog has a brief note on taxing the rich calledTaxing Paris Hilton.

Not necessarily Hilton specific, but the concept is sound. If you do away will all forms of taxation and replace them with a consumption tax, the rich will pay more tax simply because they spend more money.

Unfortunately, the Indian government ruined this relatively simple idea recently with the introduction of the service tax. They kept all forms of tax[including the short term capital gains tax of 10% and long term[12months] tax at 0%, yes ZERO] and just added a 10% service tax on all services [legal and medical services included]. Since the wealthy are likely to have more income from capital gains while everyone pays relatively the same for basic services, this is effectively a tax on poor people. WAY TO GO!

MasterCard IPO - Priceless!

After todays unsurprisingly poor performance by Vonage, the next IPO is MasterCard.
Unlike Vonage, MasterCard is pretty profitable, and with a market cap of about $5 Billion [about twice that of Vonage] actually seems like a pretty good deal. Also unlike Vonage, they're trying hard to make money [upto the point of gouging both card holders and retail shops]. Incidentally Vonage did claim that they weren't to serious about making money, they only wanted to focus on building their client base.

One dark spot is the $1 Billion payout with WalMart over the next 10 years and the potential for lawsuits regarding high transaction costs, fees and interest rates.

But if you're carrying high balances on your credit cards, this is probably a great way to hedge your bets!

GM to Cap Gasoline Prices in Calif., Fla. at $1.99

Since people aren't buying a lot of GM's gas guzzlers, GM's marketing team has hit on a novel way to entice customers in California and Florida to buy certain vehicles by July 5th.

One caveat is that customers must also agree to enroll in the OnStar vehicle diagnostic service, which is free for the first year but after that will cost $16.95 a month. Each month for one year, GM will give drivers a credit on a prepaid card based on their estimated fuel usage. Fuel usage will be calculated by the miles they drive, as recorded by OnStar, and the vehicle's fuel economy rating.

In California, eligible vehicles are the Chevrolet Tahoe and Suburban sport utility vehicles and Impala and Monte Carlo sedans; the GMC Yukon and Yukon XL SUVs; the Hummer H2 and H3 SUVs; the Cadillac SRX SUV; and the Pontiac Grand Prix and Buick LaCrosse sedans. In Florida, eligible vehicles are the Impala, Monte Carlo, Grand Prix and LaCrosse.

It works out to a saving of about $100/month if you drive 1000 miles/month. So its basically a $1200 incentive. BIG DEAL!

Housing Sales Up While Inventory Builds Up

Yahoo news reports Sales of new homes up 4.9 percent in April.

While that makes a nice sounding title, the rest of the article is slightly incomplete. The links for Yahoo news usually disappear so I'm not posting the link to the article. Instead here's a summary of the interesting parts. You'll see its slightly less optimistic.

The Commerce Department reported Wednesday that sales of new single-family homes increased by 4.9 percent last month to a seasonally adjusted annual rate of 1.198 million units, the highest rate since last December.

Economists, who had been forecasting a sales decline in April, said the increase had been skewed by the fact that the government lowered sales activity significantly in prior months.

Also, they noted that the number of unsold homes remaining on the market at the end of April rose to the highest level on record, an overhang that they predicted would depress prices going forward.

The median price of a new home sold in April was $238,500, up just 0.9 percent from a year ago, far below the double-digit price gains sellers were enjoying last year at the peak of the housing boom.

"Housing is holding up better than we had thought given how much mortgage rates have gone up, but we still expect it to weaken as the year goes forward," said David Wyss, chief economist at Standard & Poor's in New York.

Wyss said he expected home sales would drop by 10 percent this year and that construction of new homes and apartments would be down by about 8 percent.

Do Good Places To Live In Make Good Places To Invest ?

According to this article Buffalo should be in the top 50 places to live.

Buffalo goes head-to-head with most of the Top 50 and comes out ahead.

Sperling can't speak for Kiplinger's, which chose the Top 50. But he said Buffalo is a contender just for its low-cost housing and quality of life.

"People are working hard to bring [Buffalo] back," Sperling said by phone from Oregon. "Look at the downtown development you're doing."

Add Great Lakes boating, fishing and swimming; skiing an hour from downtown; two pro sports teams and low-crime, school-rich suburbs, and we're knocking on the Top 50 door.

Within a two-hour drive lie Toronto, Niagara Falls, Niagara-on-the-Lake and the Chautauqua Institution. What besides cornfields is within two hours of No. 10 Iowa City?. And I'll take our blizzards over No. 1 Nashville's tornadoes any day.

Granted, we get killed on projected job growth (none) and high taxes. But on balance, Buffalo stands higher than most.

Hmm...last time I looked at Buffalo it had a negative job & population growth for the past 20 years and also the average salary had been dropping for the past 10 years too. The property tax was also very high. I think it was around 5-6%. When investing you always follow job and population growth, so I was wondering if this data had changed and whether I should reconsider investing there. Rather than dig up my old sources and go through the data again, I thought I'd rather ask the author of the article, Don Esmonde.

It was very nice of him to reply.

Lots of government-related, and many associated with academic institutions (SUNY at Buffalo, a handful of 4-year colleges, etc)...Also a number of manufacturing (GM, Ford) jobs...As the saying goes, this is a nice place to live -- if you're got a decent job...

Why you should pay your parking tickets

Sadly this isn't a post about how to get out of paying parking tickets. This is about why you should pay your parking tickets. Ask Yahoo has a pretty good postgiving some pretty good reasons. Not only does the fine increase after about 3 weeks, eventually you'll get a boot, towed and then impounded.

And how do you get out of a parking ticket? Well you've have to ask my wife. She's gotten out of several parking and moving violations.

Blogger Quits Job!

Jeffery Stain of SavingAdvice.com was able to quit his job of teaching and selling antiques on ebay through his blogging endevors. He's started about 20 different sites, all related to personal finance such as Debt Reduction 101 and Financial Baby Steps. He was able to monetize his sites through the use of Google Adsense, where web publishers earn chump change every time someone clicks on a link. When enough people click on an ad, its pays the bills!

Through cleverly linking several related sites and providing fresh content everyday, Jeffery has managed to make enough money to pay the bills. He's not rich yet, but he's able to quit his job which is quite an accomplishment. Wish him all the best and don't forget to visit his site!

Related Posts:
Why I'm looking for a job and why Adsense rules!

Behavioral Congruence

I just received No B.S. Wealth Attraction for Entrepreneurs on friday. I actually wanted to get No B.S. Sales Success but I made a mistake when ordering.

As you can see, their covers are pretty identical so I ended up with the wrong book[incidentally I didn't realize this until I had read about 30 pages! This was definitely not what I looked at in the bookstore.] Anyway I decided to read it since I had started it. I didn't learn anything new until about page 143. Dan called it Behavorial Congruence.

Basically you act according to your goals. If your goal is to lose 25 pounds, eating icecream and stocking the cupboards with cookies is not congruent to your goals! If you want to get rich, sitting on your couch and watching TV is incongruent, hanging out with poor people who whine and complain all day is incongruent while copying what rich people do is congruent. A very simple and obvious yet commonly overlooked idea.



Another good point he brought up was focusing on actions rather than results. You don't focus on getting a contract signed today, but rather on making 100 phone calls and persevering until you get your work done. Making the 100 phone calls increases your likelyhood of getting a paying customer to sign a contract with you. By focusing on what you can influence, rather than what you cannot, you make it easier to succeed!

These 2 points were worth the price of the book, even if I had to wade through 143 pages to get there!

More Free Publicity OR Carnival of Personal Development

I made the Carnival of Personal Development too this week!

Why is personal development important? Because you need to alter your thinking in order to get rich!

Carnival of Personal Finance or I Love Free Publicity

I got a mention at the Carnival of Personal Finance hosted by Frugal Life.

Check out all the great tips!

Saving, Spending and Investing Philosophy

How you think about saving, spending and investing [about money in general] affects where you end up financially. If you think wealth is limited and you'll never make any, you're absolutely right. If you think wealth is unlimited and you just have to figure out how to get your share, you'll be right too!

Its a self-fulfilling prophecy where your actions follow your beliefs. Either spend time learning how to make money and eventually start making a lot of it, or you give up, figure you'll always be poor and you never figure out how get ahead in life.

Hanging out with like-minded people also has a big affect. Do you spend most of your time with people who complain about how unfair life is, how they're always broke and how they can never catch a break? Lose them! Their negativity will drag you down too!

Always try to surround yourself with successful people, who have achieved a lot in life and are constantly looking for the next opportunity. These people usually think there's ample opportunity in life for everyone and rarely complain about getting the short end of the stick. They take responsibility for their failures and don't waste time blaming others for their misfortunes. A lot of them are more than willing to give you insight into how to achieve wealth yourself and usually for the price of a lunch or dinner will spend a few hours with you. Thats much cheaper than spending $5k on mentoring courses that seem so popular nowadays!

Anyway, if you're starting out I recommend you read books that will change your thinking and get you into the mindset of becoming rich. After that you can figure out how you want to actually make money be it through stocks, commodities, real estate, a business or working longer hours.

Here are some basic investing books and when you're done with those, you can read my favorite selection.

Getting wealthy isn't easy. Its takes time, effort and dedication but its not impossible. Remember, no one ever got wealthy sitting at home on their couch!

On the other extreme, here's some personal philosophy from Gene Simmons, the front man for KISS
"Be clear, be truthful.
Stand there proudly,
unapologetically,
unabashed, and say,
'I love cash.
It will get me
everything
I want in life!'"

Info On Prosper.com

The Saturday edition of the Wall Street Journal had a good report on how Prosper.com is working out.

Based on the borrowes credit score, lenders can get between 8 and 24%. A lot of borrowers aren't getting enough responses for their requests because the rate they are offering is too low for their credit rating [which is set by Prosper]. People with bad credit [termed as High Risk borrowers] are offering 10% when they should be offering over 20% and these requests usually generate no interest. People trying to borrow money for weddings are also having a tough time. However borrowers with stellar credit can get money for almost anything.[like trips to europe and flying lessons!]

If the loans go bad, Prosper has hooked up with 3 collection agencies who'll then try to collect. Prosper makes a 1% cut from the borrowers and a 1/2% servicing fee from the lenders.

The author of the report had made 300 small loans with an average return of 21%. [I'm thinking that might be a typo, coz otherwise he's funded 30% of loans through Prosper till date]. No one has defaulted although 8 people are late on the payments.

I'm not sure Prosper checks the borrowers debt-to-income ratio but I think they should.

I think I'll try to borrow money from Prosper. Maybe run an experiment and see if I can raise $250k to invest in real estate. With 2nd mortgages on investment properties running over 10% right now, it would be sweet if I can get money for those at under 9%.

Check out this related post about investing in notes.

Tenant From Hell?

Did you guys hear about the tenant who left behind 70,000 beer cans?

Bet that put a lot of you newbie real estate investors off. Actually the story has a few positive points. For one, the tenant stayed for 8 years. Thats a really long time. There are always costs associated with cleaning up and readvertising the house. After 8 years you'd have to change the carpets and paint the walls. Maybe do some yard work. The longer a tenant stays, the less cost you have. And the $800 that the cans sold for definitely helped defray that cost. Plus he probably lost his deposit, so I think the landlord actually was happpy! I know I would be.

Financial Ignorance Is No Excuse

Q. What's the difference between Tax Evasion and Tax Avoidance?
A. About 4 years!

BBC reports that the original Survivor winner was sentenced to 4 years for not paying tax on his $1 million winnings and some other earnings.

Richard Hatch claimed financial ignorance. Yeah, not paying taxes on money coz you didn't think you had to or you forgot you earned it is a great excuse. Right behind that is the excuse that taxes are unconstitutional. Unfortunately, both of them land you in jail. Do not pass go, do not collect $200 and go straight to jail!

If he had taken the initiative to talk to a financial planner,he could've saved him some money by intelligent tax planning. Atleast he would've told him that he needed to pay tax on the money he made and saved him jail time!

How To Negotiate A New Car Purchase

Lawrence Salberg has a great post on saving money when buying a new car. Its only the first in a series, but its quite a good read. Considering that Lawrence used to be a car salesman, its the inside scoop!

Real Estate and Taxes

No one likes paying taxes, especially not real estate investors. Luckily, congress has been kind and offered a lot of tax breaks. Whenever you make a profit in real estate, there's usually a way to avoid or atleast defer paying taxes.

The most well-known tax break is the 121 home owners exclusion. If you live in your property for 2 years[or 2 out of the past 5 years] you get to exclude 250k if you're single and 500k if you're married from your taxable income.

If you own investment real estate you cannot take advantage of this. Unless you move into it and live there for a full 5 years.

however, there are several ways to get around paying taxes on investment real
estate.

1. Just pay the tax. long term is 15% fed and whatever your state tax is[max in CA is almost 10%]. If you already have several homes which you can depreciate and thereby create phantom losses, you can offset this passive gain through these passive losses.[You can deduct upto $25k of passive losses against regular income. If you have more, it gets carried forward until you have a passive gain to offset it against].
   
2. Do a 1031 exchange to defer paying taxes on the sale.
   
3. Put the proceeds from a sale into a Passive Annuity Trust.
   
4. Buy and sell your property through a corporation. When you realize a profit, some of it can be expensed out and the rest can distrubuted as salary and used to fund a corporate 401k-pension plan [subject to approximately 15.5% tax]. This is good for short-term flips which would normally be clubbed with your regular income and subject to the maximum tax rate. The disadvantage with this is that you lose the ability to depreciate the losses against your regular income, although you can against corporate profits.[Atleast you do in a C-Corp. Not sure about S-Corp]
   
5. Once you have money in your corporate 401k-pension plan, buy and sell property in it. This avoids taxation. This allows loses the ability to write off depreciation losses against regular income.
   
6. Never sell the property. Just refinance it to pull out cash tax-free if you need it. When you eventually die, its passed on to your heirs at a stepped-up basis and they don't pay taxes on it either!
   
7. Invest the money in a working interest in an oil well. If set up as a real estate transaction you can do a 1031 exchange. Or they can be set up to give you a 90% write-off in the first year. [However, the deals that are set up to be tax advantageous have a higher premium, losing the benefit of not paying taxes].
   

Real Estate provides some of the best tax-advantageous investments available. Buy your investment real estate today!

These rules are neither complete nor may they pertain to your particular situation. Infact, they could be blatantly wrong or out-dated. Also, I'd like to stress i'm not a CPA so please consult your advisor before following any of my advice.

Make Free Calls To US

Skype has announced that until the rest of this year it's customers will be able make free calls within the US. You have to download its client and you can then make PC-to-Phone calls for free. Its a marketing campaign to boost their client base. Since they have deep pockets [thanks to Ebay.com] its our chance to take advantage of this free offer.

Its especially useful for friends and family outside the US. They can now call us on our land-lines or cellphones at no cost to them.

Investing in Notes Or Getting The Most Returns On Your Money

Everyone always wants the highest return on their savings. Currently with interest rates being on the rise, the rate the banks offer are on the rise. INGDirect offers just over 4% for their regular savings.

For better returns, people invest in notes, both secured and unsecured. Places like Prosper.com let you lend money to people you've never met via the internet. Current rates are between 5.25% and 22% depending on the borrowers credit.

There's also another company cpsnotes.com that will lend money from you to buy repossed cars and resell them. The company is listed on NASDAQ and offers 1 year terms of 8%. This is also unsecured.

Then there are the secured variety, backed by real estate. These notes offer between 6% and 18%. You can either become a hard money lender yourself and charge various points, but you're stuck with doing the research and if something goes wrong, you need to know how to recoup your investment. You can also lend money to hard money lenders at around 10-12%. They relend to investors and make a decent spread on the money.

I've currently lent out some money to an investor who's doing a condo conversion at 24%. Its been 8-9 months and so far he's paying out regularly. I also lent a very small amount to another investor in Texas on a commercial property at 18%. He's having a tough time making the payments. I'd go and file a case on the property, but the amount is so small, its just not worth the effort. It is secured by the real estate, so if it ever gets sold or refinanced, I'll get my cash-back. I'd say there's probably a 50% chance of getting my money back.

I've also lent some money to a developer/builder. This too is backed by real estate but the payments are on the backend. Because they're are no payments due monthly, its structured like a partnership with me getting 75% return after 20 months.[As some of the properties are sold after 15 months, I start getting some money back]. So far its been around 10 months. Lets see how this works out.

If any of you have invested in notes or prosper.com, let me know how its worked out for you.

Magic Number For Pricing Online Courses

Apparently most online affliate programs $49.95. If you see an ad for ebooks or courses about affiliate marketing, email blasting, making money online, starting a business, adsense, adwords, spam marketeering, they all cost this same price. Some of them were originally listed for $97 but are now discounted to $49.95.

Who comes up with this number? Is there an institute of consumer psychology that comes up with a specific pricing at which point its really attractive? How come they all chose the same exact price?

Anyone know the answer to this? Maybe one of these courses will actually reveal this answer!

New Mortgages

Creative mortgages have been mushrooming over the past few years. I think they become popular whenever property values become too high and the affordability drops. After a crash in prices, the lenders tighten their lending standards and they disappear. [From what I heard about the last crash]

The Option ARM loans have been pretty popular among investors. You have an option to pay you monthly payment as a

• Fully amortized 30 year loan
  
• Fully amortized 15 year loan
  
• Interest-only payment
  
• Negatively amortized interest-only payment thats probably 1/4 or 1/2 of the Interest-only payment
  

I'm not a big fan of these loans or the negatively-amortized loans because the APR is usually 0.5% higher than the interest-only loans[IO loans] and you end up payment compound interest on the money you borrow. I've been getting IO loans where the interest rate is fixed for the first 5 years.

However a new loan that I may opt for is the fixed 30 year loan which is interest-only for the first 10. After that its amortized over the remaining 20 years. The interest rate if fixed over the life of the loan. I may end up gettting these loans since the interest rate is only 0.25-0.5% higher than the 5 year IO loans and it gives you the security that you'll be able to afford the payments in the event you actually keep the property for a long period of time. I think a 40 year option is also available.

I would consider getting this on my personal residence over the regular 30 year amortized as it lets you pay less for the first 10 years.[whenever i buy my personal residence that is. I'm currently renting!]

Facelift Part 2

Here's another shot at the new look. Thanks to BostonGal for her help.

Let me know if this doesn't work for you. Mention your OS and browser version.

What To Do If You Hate Your Job

The Wall Street Journal had an article about a person who quit her high paying job after 15 years and is starting a new career from scratch.

Other Bloggers have mentioned that pursuing a given occupation because it affords a better lifestyle is better than doing what you truly love.

Well if you dislike what you're doing and you want to try your hand at something new, Vocation Vacations will set you up with a vacation at your new job. Unlike most jobs however, you pay for the experience just like a vacation. Here's a good article about test driving your new job.

However if you can't figure out what you want to do with your life, I recommend picking up Life's a Bitch and Then You Change Careers : 9 Steps to Get Out of Your Funk and On to Your Future . Like the title suggests, for those of us who are dis-satisfied with our lives and occupations, it'll give you some ideas on changing your career and putting you in touch with something more fulfilling.

The Object of My Desire

While blogging about saving money, making money and living frugally is all very fine, the whole idea is to get so damn rich you can buy any old crap you want. The object of my desire is the Ferrari Enzo. Only 350 were made and it costs around $700,000. While pretty ugly from certain angles, it looks like a space ship and packs a whopping 660 horses. Ferraris are expensive to maintain and require a transmission overhaul every 40,000 miles. So you have to be really really loaded in order to afford one.[Notice I said afford and not buy].

Something a little more affordable and probably just as much fun to drive is the new BMW M5. It packs 400 horses but at the touch of a button magically changes to 500! It won the highly covetted Internation Engine of the Year Award and costs a more affordable $85,000. Of course I won't be buying one of these pretty soon [although my CPA might]. This should be more fun to drive than the Transporter's 7 Series!

My next car is probably going to be the ultra cheap and fuel efficient Toyata Yaris which costs under $12,000 and gets upto 40 miles/gallon. However, if the wife will permit I may forgo this inorder to get the new Dodge Charger. For $30k, you get a V8 hemi with 340 hp and 25 highway miles to the gallon! Now that should be fun to drive.

Save money on energy costs

CNNmoney.com has an interesting article on how to reduce your energy costs by buying a windmill. Very interesting concept. It costs about $6000 and it'll save you around $500/year. [probably even more in California]. You also might qualify government subsidies. Check out the company's website for more info.

There's also another article on saving money on energy by buying off-peak when its cheaper and storing it. Don't know how effective this is but its also an interesting article.

I'm cheap so I'll probably hang out at my friends places and use their elecriticity instead! ;-)
Got any wacky ideas of saving electricity? Let me know.

How to become a Billionaire

Donald Trump wrote a book on "How to think like a billionaire'. Amongst the worst pieces of crap ever written on Investing. A better book is The Art of the Deal which you can buy for under a buck! [Warning: None of the Donald's books are on humility. They're on creating a larger than life image and full of self-promotion and bragging. But then he's not known for being modest]

Anyway, I digress. The main focus of this post is this article, 7 ways to join the billion-dollar club. It essentially focused on businesses, but I realized with applies just as well to Real Estate Investors.
1. Create and sustain a breakthrough value proposition.
Only buy value. Don't go for those speculative deals and risky investments. Like buying in San Diego after everyone and their mother has gotten into investing there. Buy in places were the locals are still skeptical.
2. Exploit a high-growth market.
Find out which places are set to explode in terms of population and job growth.
3. Focus relentlessly on cash flow.
Hell yeah! Don't buy property which doesn't cashflow even after you put 20% down. That's speculation. You're not buying the value, but the hope that'll it continue to appreciate and some other fool with take it off your hands.
4. Leverage big-brother alliances.
Find people like you and band together to get better pricing with builders and property managers. Even if you don't always get better pricing, you usually get better service.
5. Pack your board with industry experts.
Always read up on the experts like WSJ.com and John Burns. Listen to the "gurus" but don't follow them blindly. They always have something to gain so they're advice is always biased.
6. Use marquee customers to build credibility.
Once you've done a few deals with partners, use them to promote your credibility. This is particularly useful when you want to raise money for a new project.[In my previous post I mentioned that buying foreclosures requires a lot of cash. This is where your credibility comes in handy].
7. Build an inside-outside leadership team.
You'll need great people to handle the inside business[lawyers and CPAs] and the outside business[agents and property managers].

How To Stop Foreclosure in 2 Hours!

Went to a real estate meeting last night. The speaker was Ward Hannigan a local san diego investor who cleaned up the town during the last 2 RE recessions buying foreclosures. He thinks during the next downturn[which is going to hit in the next few years] he's doing to make more money than he's made totally during the last 24 in the foreclosure business.

He's very much the contrarian investor. What is contrarian investing? It means you have the guts to go against the crowd [and popular sentiment] and do exactly the opposite. You sell when others are ecstatic and a you buy when others are fearful and have given up hope. Why does this work? Because people are usually wrong when they all put their heads together. A great book on the psychology of the common investor is Extraordinary Popular Delusions & the Madness of Crowds. It explains the feeding frenzies that have occured over the past few hundred years. [you get the weird feeling its describing the stock market craze and crash of 2000].

He says in a few years, when most people have given up on investing in Socal, it'll be time to buy. You'll need a lot of cash to pay for homes at auctions but you'll need to buy them at 65-70% of the then FMV [Fair Market Value].

Here are some of his tips in no particular order.

• Stick to entry-level housing in core urban areas. Stay away from remote areas.
  
• Don't buy condo's, except in Downtown San Diego.
  
• Don't buy office Buildings
  
• Buy on the 4th postponment of an auction[weeds out the less motivated investors]
  
• Get several cashiers checks in various amounts.
  
• Ask for the TSG when you win at an auction[Trustee's Sale Guarantee].
  
• If you doing pre-foreclosure buying, postpone the foreclosure by filing chapter 13
  

As an exercise he said those of you that were really interested should go down to the local court to find out how to file Chapter 13. Infact, as a motivational tool, he promised lunch to anyone who could prove that they went down to the office today. So during my lunch break I headed downtown to find out how to file chapter 13! After spending 15 minutes getting into the courthouse[had to go through the scanner and remove my belt and shoes], I find out there's a seperate Bankrupcy court. After spending another 15 minutes wandering around, I finally found it. No, I did NOT stop to ask for directions to bankrupcy court! Funnily enough, it was absolutely empty! Didn't think warranted its own building [which was quite pretty]. Maybe filing bankrupcy a seasonal thing ;-)

The clerk asked me if I wanted the forms for emergency chapter 13 filing. I was amazed at her prescience. My next thought was "wow, do I look like such a loser?", but then she asked if I was part of a class. Aha! Several other people had shown up before I did. Anyway I said no I put on a face like I was hurt she was making fun of me! I found it it takes about 10 mins to file, once you filled up the couple of pages and it costs $274. "Thats it?" I asked incredulously?

So for a few pages of paperwork and a few hundred bucks I could get my creditors off my back for a while [& ruin my credit for the next decade]! Awesome! Don't you just love this country! Of course I'm being facetitious. Chapter 13 is just a reorganization of debt. You have to pay back a lot of it over the next 3-5 years.

Market Update

In my last post I mentioned that the Dow was up despite a bunch of negative news. As I expected it didn't last and the Dow is down 200 point over 2 sessions. Historically May through September is a bad time for the markets. Someone did a study that if you invested only between October and April you'd make much more than the industry average in the long run.[sorry, I can't recall the source].

Someone I know, Robert Campbell, author of Timing the Real Estate Market, said that if you invest on December 1st of every year and pull your money out on January 15th[45 days later], you would make a 7% return 80% of the time!

Anyway, I think the market is going to continue to do badly in the short term. I had previously mentioned RNE, IIF and IFN. Today they're all down between 5-15%. I'm going to use this as a good opportunity to get in. [NOTE: DON'T BLINDLY FOLLOW MY ADVICE. DO YOUR OWN DUE DILIGENCE]

Back To The Old Drawing Board

While the new format of the blog worked fine on my Windows 2000 machine under Firefox 0.9, it didn't work well under Internet Exploder nor under WinXP and a different version of Firefox. I did spend several hours messing with the stylesheet but I now must admit temporary defeat and revert back to the old format.

Besides, I'd rather be blogging!

Gold today jumped up a few more bucks to $704. Two people asked me if it was still a good time to buy. The answer is no. Wait for a consolidation at these levels before venturing in.

Bernanke raises interest rates for the 16th time in row. He's not saying if he'll raise them again, but he sure ain't lowering them!

Oil is still hovering at $72/barrel.

The Dollar slides against the Euro to its lowest point in 12 months.

Despite all this bad news, the Dow still rose 3 points. Thats pretty unusual. Lets see if it holds up tomorrow.

Got A Face Lift!

The Money Shaker Blog has finally gotten a face lift. Please let me know what you think of it and if any changes are needed.

Vonage Is Going IPO And a Cheaper Alternative

Vonage has announced plans that its going public. Its had a steady growth in revenues but its still deeply in the red. While I think a lot of people will get rich off its stock, its not a value buy nor is it a long term hold.

There are a slew of companies that offer similar services at Vonage. Although they don't have as big of a marketing budget and thus aren't as popular, their services are comparable. [well somewhat comparable]. I recently tried out sunRocket's service. After being billed erroneously for an 8hr phone call to Australia in the middle of the night on a weekday [which just doesn't work for me, i go to sleep by midnight most fridays too] I decided I'd cancel. They wouldn't pick up the phone nor would they reply to my emails about cancelling their service. I had to dispute the charge with my credit card company.

So whats the cheaper alternative to Vonage? Vonage currently charges $17/mo for 500 outgoing minutes. Unlimited incoming minutes are free. To replicate this service all you need is a Dlink VOIP router which costs the same as Vonage's VOIP router. You'll need to buy a telephone number which you can do at GizmoProject.com for around $35/year and some prepaid minutes. Calls within the US are 1 cent/minute. So you're 500 minutes will cost you about $8/month as opposed to Vonages $17. Also using the GizmoProject softphone, you can make calls anywhere you can plugin your laptop and you can buy a service that rings multiple phone[both regular and soft] simultaneously. I have a Gizmo softphone at home and it works exceptionally well. Even for international calls the quality is great, something which I found lacking in sunRocket [and even SBC where I often had to shout].

I hope this proves my frugal nature to Lazy man et al! [I'm just teasing]. Like they say, "A penny saved, is a penny earned".

Gold Crosses $700 Mark

I feel like a broken record. I've grown hoarse trying to get people to invest in Gold.

Anyway if you haven't buy some already, now may not be the best time to jump in. You might want to wait for a pull back. Of course, which way it'll go from here is anyones guess.

However Gold still remains below a high of $850 on the cash market, a London fix price, set on Jan. 21, 1980. On that date, futures hit an intraday high of $875 before settling at $825.50. Adjusted for inflation, gold would need to trade to $2,200 to match those highs. [source: WSJ.com]

Clunkers make a comeback

In a news story today, WSJ reported that young people are buying old "grandpa" cars from the 70s till early 90s, like buicks and chevrolets. They're tricking them out by putting 24 inch "donkey tires" and painting them bright colors like tangerine orange and lime green and putting expensive audio systems in them. Started by the success of TV shows like "Pimp My Ride", this craze has even spawned a magazine called "Donk, Box & Bubble".

Nothing to do with PF or investing, but interesting nonetheless!

What type of blog reader are you?

Moomin Valley has an interesting post on the different types of financial bloggers. He theorizes on the two main types - those who are trying to save money, and those are trying to grow their money.

Quite an interesting concept. [He is an economics professor so his job is to theorize on these things anyway!]

The next logical question is what sort of reader are you?

Made the 47th Carnival of Personal Finance

Bargaineering.com's hosting the 47th Carnival of Personal Finance. He's created a pretty neat image map that looks like an amusement park. Thanks for mentioning my site!

Buffet Thinks The Dollar Will Continue To Slide

The Wall Street Journal had an article that Buffet is buying foreign companies now. Berkshire recently bought Israeli car manufacturer Iscar and it looks like that just the beginning.

The continuing weakness of the dollar despite higher rates strengthened his view that Berkshire needed to invest in companies and securities overseas to protect itself from a possible sharp fall in the greenback.

Mr. Buffett blamed, as he has in the past, the growing current-account deficit in the U.S. and the country's trade imbalances with other nations, such as China, which could cause a painful correction in the dollar and lead to "significantly" higher inflation. "The more you owe, the more it becomes attractive to devalue the currency" in which your debts are denominated, he said.

Buffet also thinks that speculators are now driving up the price of commodities and that "at midnight its all going to turn into pumpkins and mice".

How to Disinherit Someone

The Wall Street Journal has an interesting piece on How to Disinherit Neatly.

• Get it on tape. Lawyers might also suggest that you videotape the will signing if you're worried about a will contest. You would need to hire a professional videographer and, in the presence of an attorney, explain why you chose to distribute your assets in this manner.

• Add a no-contest clause. A no-contest clause is a legal instrument that can prevent heirs from fighting over what they get. It's a good technique to use when you're planning to give unequally. It essentially lets you say, If you go against my wishes, you will be cut out.

I wonder why I find all this irrelevant stuff interesting?

The 10k a day guy

Read this post about this guy who makes 10k a day from adsense. Pretty Amazing. His pretty crappy dating website has about 2 million visitors and 50 million hits a day!

Whats his secret? Use leaderboards instead of skycrapper ads and don't include a border , especially for blogs.

Excellent Book on Economics

Just picked up a pretty good book on Economics. There was a sale at the local library. I bought Econ 101 1/2 by Elaine Schwartz for 25 cents along with Money Mischief by Milton Friedman for buck and several Star Wars novels for 25 cents apiece.

I tried reading a friend's book on introductory economics once. Mind numbingly boring! Econ 101 1/2 is a really good introductory text on the subject. Full of entertaining anecdotes and stories. Best education money can buy for 25 cents!

Haven't read the Friedman book but its gotten pretty good reviews on Amazon.

I also picked up The Far Side Gallery for $1. Not everyone appreciates Gary Larson's humor but I think he's pretty good. A good and cheap addition to my collection of Dilbert and Calvin and Hobbes books.

Convert Your IRA to a Roth IRA

May 5, 2006--Cleveland, Ohio--Congress is currently considering plans to allow holders of Traditional IRAs, even high-income taxpayers, to convert their IRA into a Roth IRA, which allows tax-free withdrawals.

Roth IRA benefits include completely tax-free distributions if the account has been established for five years and the account holder has reached 59 1/2 years old. To convert to a Roth IRA Americans must currently fall below $100,000 Modified Adjusted Gross Income (MAGI).

According to published reports Congress is planning to suspend the current $100,000 MAGI income limit for Roth conversions for one or two years. After a tax payment when converting, Roth IRA holders would benefit with considerable tax savings in later years when making withdrawals. The plan is part of a larger tax bill that could be finalized as early as this week.

Since I'm in such a low tax bracket, I should be making more contributions to my Roth IRA and only after maxing out should I be contributing to my 401k. However, its very convenient to take the money out of my paycheck before I can get to it and I can mix it amongst various mutual funds. Its the easiest solution, if not the most optimal. I atleast took the step of converting my IRA to a Roth IRA late last year. I'll probably get around to contributing more my Roth IRA but I'm still not a big fan on the stock market. Right now real estate is a better play, though that my change in the next few years.

For those of you that don't know, a ROTH IRA is a retirement account where you accumulate money that grows tax-free. Unlike a regular 401k or IRA, the withdrawals are completely tax-free. Read this article on Why you should invest in a Roth IRA.

Foreign Mutual Funds Update

Since I mentioned the 3 mutual funds IFN, IIF and RNE about 10 days ago, they're up about 10%!!

Of course I didn't have any money in my brokerage account to take advantage of this move but I hopefully I'll be able to get some money into my retirement account soon. Hopefully they won't rise too much before then.

Buying a Cold Stone Creamery

A friend approached me over the weekend asking for advice on buying a Cold Stone Creamery.

We went over the numbers. They looked okay. The Seller was selling 5 of his stores for 1 times gross revenue[about 4 times net profit] or approximately $350-$400k each. He was willing to finance with only 20% down plus $20k franchise transfer fee which is a great way to get into it if you don't have the money, or enough to qualify for an SBA loan.

The stores were located in good neighborhoods with 80,000+ people living in a 2 mile radius and in retail business centers doing over $1 billion worth of sales per year. The company requires a population of only 20,000 in a 2 mile radius and an average income of atleast $35k, but I don't think these are enough to sustain the business. You want a LOT of people stopping by the store and they shouldn't be too rich. Rich people live in population spare neighborhoods, have fewer children and are less likely to walk to the icecream store every night in summer since they're out travelling the world. They're kids are also less likely to work for $7 per hour so finding cheap manpower might be tough.

Apparently the seller claimed he was selling the stores because his brother was supposed to be doing the marketing and wasn't pulling his weight. So he was getting rid of them. He said that there was minimal supervision required by the owners and it was ideal for absentee owners. I find that a little hard to belive that someone would sell 5 stores pulling approximately $100k each that required minimal supervision. Doesn't matter how rich you are, $500k/yr is always a good chunk of change. I warned my friend that it could turn into a 2nd job that he wouldn't be able to quit.

I advised calling up the Area Development Managers and asking them to have existing owners talk to them. They're usually pretty honest about the requirements and efforts required to keep the stores operating successfully.

followup:
I kind of got interested in the deal and thought about partnering with my friend on it.

I had my CPA look at the numbers. Since I've referred him a ton of business and got him in some good investments, he doesn't charge for this kind of stuff. He looked at the financials and said 2 things.
1. Don't pay more than 2.5 to 3times the net income
2. He's not making the 00k per store that he's telling you.

So I passed on the deal. My friend was still interested and he got a potential partner who's already in the business but was outside the area. As soon as he found out who the seller was he said that guy's a crook and bailed. So we both ended up bailing on it.

Doesn't matter what franchise you're buying, always show the financials to a competent CPA and try find out the background of the seller.

related post:
What To Look At When Buying A Dry Clearer Business

Bank of America Investment Accounts

I just saw an ad for Bank of America. They now offer $7 stock commissions. Thats a 30% discount on Ameritrade's $9.99! Of course you need a Prima checking account to avail of this pricing. But if you have $100k in combined balances with them, you only pay $5!!!

Has anyone used them? I think the biggest advantage is the quick transfer of funds between your checking account and brokerage account.

Buying Apartment Buildings

After having bought so many single family properties I think the next logical step is to buy an apartment building. If bought correctly, an apartment building can provide good cashflow apart from the usual appreciation.

Since I don't know anything about this I've been reading some really good books. Two that are really good are
How to Buy and Sell Apartment Buildings and
How to Manage Residential Property for Maximum Cash Flow and Resale Value.

Anybody know any other good ones?