How to profit from real estate investments in a soft and declining real estate market – Part 2 February 2, 2009
Posted by Jeff Nabers in : Money, real estate, Self Directed IRA Solo 401k , add a commentThis is the Part 2 of series of posts on this topic. In order for this to make sense, please go back and read Part 1 first.
Real Investors have the following in common:
- Buying single assets. What is happening to an entire market is less important than what is happening to the actual assets that you hold. Real investors are holding a portfolio of single assets that are performing well, oftentimes even while the entire market is doing poorly. This may be difficult to do in the stock market, but it’s much more feasible in real estate.
- Buying real estate now. A few years ago, real investors were frustrated that blind investors were running up the price of real estate. This made it more difficult to buy real estate at a price that allowed for profit. Now that all the blind investors are fleeing from real estate, the remaining real investors are breathing a sigh of relief that they can get back to more profitable deals again.
- Looking at comparable sales and comparable rents to analyze a residential property.
- Seeking properties in any geographic location that (more…)
How to profit from real estate investments in a soft and declining real estate market January 21, 2009
Posted by Jeff Nabers in : real estate, Self Directed IRA Solo 401k , add a comment
Three years ago real estate investing was hot. Today, many people act as if the opportunity has passed. I contend that the opposite is true. In the past, as a mortgage banker focused on originating mortgages for investment properties, I started listening to and learning from my real estate investor clients and noticed two categories of real estate investors: real investors and blind investors.
Real Investors have the following in common:
- Profiting when they buy. Rather than believing an entire market is hot or cold, a real investor knows that the purchase price is what dictates the return on the investment. You can look in any real estate market to see property values and rental rates. Those are things the investor doesn’t control. The investor does control what he is willing to pay for a property, and that’s how a real investor knows what his return on investment will be before buying the property.
- Investing for income. Real investors buy assets because they produce income. What a property is selling for doesn’t even matter if (more…)
Does the weak dollar make foreign real estate a bad investment? August 7, 2008
Posted by Jeff Nabers in : Money, real estate, Self Directed IRA Solo 401k , add a comment
In a recent meeting with a couple of real estate investors, I was posed with the question:
Doesn’t the weak dollar eat into the profit of foreign real estate investing?
Not at all; in fact, quite the contrary. A weak dollar makes spending dollars in foreign countries disadvantageous. I ran into this a few years ago in Sweden. I went to buy a t-shirt and it cost the equivalent of $85 USD. I asked my Swedish friend if this shirt was expensive, and he replied “no”. That’s when I learned firsthand that the plummeting dollar is making international vacationing more expensive for Americans.
Spending money on foreign real estate
The same does apply to real estate purchase for personal use. If you find a beautiful property in a foreign country that you’d like to buy for personal use, it’s going to cost a lot more today than it did 5 years ago. You’re spending US dollars and you’re going to have to spend a lot more now since they are worth less thanks to inflation.
Investing money in foreign real estate
Investment into real estate is done to accomplish one or both of the following objectives:
- Produce [Rental] Income – I believe this should be the primary objective of any investment. Income is more predicable and controllable than appreciation.
- Appreciation / Capital Gains – This is the focus of most novice investors.
When investing in foreign real estate, you convert the appropriate amount of US Dollars into local currency, and you will purchase the property in local currency. Regardless of whether you receive your return on investment from #1 above, #2 above or both… you will receive it in local currency. If you buy property in Sweden, you will receive rental income in kronor (Swedish crowns) and proceeds from the sale of the property will also be in Swedish crowns.
Scenario 1. If the dollar is weak (relative to its historic value), but its value remains constant during your ownership of the Swedish property, your return-on-investment (ROI) will be unaffected by the dollar’s weakness.
Scenario 2. If the dollar is weak, and it continues to weaken during your ownership of the Swedish property, your ROI in Swedish crowns will remain unaffected, but in USD your ROI will be increased.
Scenario 3. If the dollar is weak, but it rebounds and strengthens in value during your ownership of the Swedish property, in USD your ROI will suffer. The dollar can only bounce back if the Fed completely reverses its monetary policy. In this case, interest rates will go up to 13% – 20%, and the entire US economy will essentially crash. Here there will be so many opportunities that as long as you didn’t put your entire investment portfolio into the Swedish property, riding the bear market down in short positions will more than compensate for the lessened ROI on the Swedish property.
Weakening dollar makes domestic real estate investment a bad idea
The weakened dollar has hurt real estate in the last 2 years. During this time, inflation has been at 10% – 12%, while housing values have been stagnant or even declined in some localities. This means all our homes have decreased in actual value 10%+.
If you believe interest rates will remain low and that Fed will continue its inflationary policies, investing in U.S. real estate might not carry a very good ROI. If your property is returning you 12% annually, but inflation is at 12%… you have successfully stored and protected your wealth, but you have not grown it. The continued weakening dollar will hurt domestic real estate unless real estate appreciation outpaces inflation. Using the increasing money supply as a forecaster, inflation is heading towards 16%. I don’t think real estate values (or rents) will increase by 16% per year over the next few years, so this tells me that while our inflation continues, domestic real estate investment performance [in general] will suffer.
Summary
- The weakened dollar has made spending money in foreign countries expensive for Americans.
- The weakened dollar has not affected real estate investment into foreign countries.
- Should the dollar’s weakening/debasement continue, ROI in foreign investments will increase.
- Should Fed’s monetary policy reverse, we will experience deflation and an economic collapse. In this circumstance, there will be tremendous investment opportunities for anyone who has enough liquidity to take advantage of the moving markets.
Concepts to consider
- Reduce your exposure to the US Dollar now to protect your wealth
- Keep enough liquidity to enable you to react to the possibility of coming reversal in Fed’s monetary inflationary policies
- Hold that liquidity in assets denominated in a foreign currency – preferably a currency from a country whose monetary system is generally sound and stable such as Canada or Switzerland
Landlording your IRA LLC's properties – Is it allowed? May 30, 2008
Posted by Jeff Nabers in : real estate, Self Directed IRA Solo 401k , 19commentsA question I get all the time is “Can I personally mow the lawn, maintain, and/or repair properties owned by my IRA LLC?” My answer is “No” which usually creates the response “But another company said I could.”
First, let’s summarize that the accountholder/participant of a retirement plan generally can’t have a transaction between themselves and their retirement plan. This includes the furnishing of services, sale of property, lending of money, and extension of credit between a plan and disqualified person (such as the accountholder). Next, let’s establish that active landlording means mowing the lawn, repairing, and fixing up properties, while passive landlording means collecting rent, paying mortgages/taxes/insurance, and contracting out the more active tasks to non-disqualified-persons. So is active landlording allowed? No, and I’ll provide two answers – the technical and the layman’s.
The Technical Answer
The argument for why active landlording for your IRA LLC’s property is not a prohibited transaction goes something like this…
As a general rule, the Internal Revenue Code provides (more…)
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