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Forced Appreciation April 28, 2008

Posted by Jeff Nabers in : real estate, Self Directed IRA Solo 401k , 1 comment so far

There’s a questionnaire that I go through with my new customers over the phone, and in it I ask if forced appreciation is part of their investment strategy. Often I hear a response of “huh?”

Forced appreciation belongs mostly to the world of commercial real estate. It’s natural for the new real estate investor to gravitate towards residential because everyone understands it. We all live in a home and pay a mortgage or rent payment. Prices fluctuate due to supply and demand, and we understand this. What many don’t understand is that commercial property is the investor’s preferred real estate. Why do I say this? I thought you’d never ask…

Property prices are always truly decided by the buyer and seller. But market value can be determined by a property appraisal. Here’s where residential and commercial RE appear to come from different planets. Residential property is almost always appraised by comparable sales. In other words, the market value is whatever everyone else is paying in that area for that type of property in that type of condition. The purpose of residential property ownership is living space. So “type of condition” means the physical condition of the structure & its fixtures. Bank lending plays an important role in how appraised value and actual purchase price interact. Most residential property is purchased with mortgage financing. Residential appraisals are based on what others are paying for similar properties, and the lender ends up only lending if the purchase price of the subject property (which is the loan collateral) isn’t much higher than the appraised value. So, when you are in the market to buy or sell, you’ll generally need to buy or sell for a price close the the appraised value.

When investing, the two things that indicate the performance of your property owned are cash flow and gains or losses upon liquidation. In residential real estate, your gain or loss upon liquidation is determined almost entirely by what other people are paying for similar properties at that time. So what’s wrong with that? Well, for starters (more…)

The Collapse of the Dollar & How to Profit From It April 16, 2008

Posted by Jeff Nabers in : Money, Precious Metals, Self Directed IRA Solo 401k , 3comments

I just got done interviewing John Rubino, co-author of The Collapse of the Dollar – Make a Fortune by Investing in Gold & Other Hard Assets, and it was quite interesting. Rubino stated that:

Over the last 7 years the stock market has dropped [as significantly] as it did during the Great Depression.

“WHAAAT?!!” you say. He explains that our perception of this strong bear market has been softened by the declining value of the dollar. In the spirit of comparing apples to apples, we must first consider that in the late 1920′s and early 1930′s the dollar was fixed to gold. So, in essence, the stock market’s decline was measured in gold. According to Rubino, you would see a depression-like chart if you were to measure the past few years of the stock market in gold.

The most convincing thing about his perspective is that he accurately predicted the burst of the housing bubble… in 2003. He forecasted that those who would suffer the most from the popping bubble would be homebuilders’ stocks, Fannie Mae & Freddie Mac, and real estate prices in “hot” (at the time) areas. He even went on to explain that the contributing factions would spill over into other parts of the economy including financial services companies, and banks themselves. At that time, the idea of one of the country’s largest investment banks (Bear Sterns) becoming insolvent sounds crazy, but Rubino warned us all with How to Profit from the Coming Housing Bust: Money-Making Strategies for the End of the Housing Bubble. In fact, if you would have followed his advice to the “T”, you would have profited immensely , provided that (more…)

Solo 401(k) Nonrecourse Loans Now Available April 15, 2008

Posted by Jeff Nabers in : Self Directed IRA Solo 401k , 5comments

For many real estate investors, leverage is a key factor to their plans for profits – leverage in the form of mortgage financing. When you introduce mortgage financing into Self Directed IRA ownership of real estate, a special tax called Unrelated Business Income Tax (UBIT) is triggered. The tax often isn’t detrimental as will be covered in another post, but nonetheless it reduces the profit.

For the self employed, a fantastic development has occurred over the past few years – the Solo 401(k). One distinct advantage of the Solo 401(k) over an IRA is that it is not subject to paying UBIT on profits from financed real estate. Eliminating UBIT by using a Solo 401(k) eliminates the need to file a return (Form 990-T) as well as the accompanying tax. Sound pretty good so far?

The difficulty in recent times has been obtaining nonrecourse financing. The leader of NR financing in the Self Directed IRA industry for the past few years has been North American Savings Bank. Last year, they took the familiarity of IRA lending and applied it to Solo 401(k). Unfortunately for many Solo(k) investors, this has only been available to plans who choose to name a custodian as trustee of the plan. Qualified plans (which is what all 401k plans are) are different than IRAs in that they are not required by law to (more…)

Green from Green April 6, 2008

Posted by Jeff Nabers in : Health, Money, Self Directed IRA Solo 401k , add a comment

In case you haven’t heard about the latest buzzword, it’s “green”. Green living, green cars, green houses, green lifestyle, and now – green investing. The mutual fund market has been quick to provide a push button conscience cleaner – SRI (Socially Responsible Investing) index funds.

Let’s take a step back and look at the situation for a moment. We are running out of the resources that make our life possible on this earth. We’ve put poison into our air, our waters, and our bodies. Why? Convenience.

Convenience got us into this mess, and I have a hunch that convenience isn’t going to get us out. Green investing can be VERY profitable. This is because better technology yields better results, and better results means savings. Savings means profit.

2 reasons why the real profits aren’t in a green mutual fund or stock

  1. Large companies might not want to make progress. If you have a monopoly on an inefficient product, it’s sometimes more profitable to fail at progress. Don’t believe me? Watch the documentary Who Killed the Electric Car? and decide for yourself.
  2. Small companies have to be innovative to grow and profit. A startup company who has to face its VC investors needs to make progress fast. There’s a little more incentive here than there is for an Exxon or most any publicly traded company or fund. Look at some of the most recent incredible successes: Microsoft, Dell, Google, Paypal, Myspace, Ebay, Facebook, etc. With each of these companies, the real innovation came early because it had to, and it’s often followed by stagnation once funded with billions of dollars (where’s Microsoft’s continuing innovation?)

If you are thinking that I recommend you search the garages of America for the next Bill Gates, Michael Dell, Larry Page, or Pierre Omidyar, then think again. Get creative, think outside of the box.

Here’s one I’ll throw at you to get the creative juices flowing (and feel free to play devil’s advocate):

Find a company that (more…)