July 31, 2013

Distressed Properties Can Be A Good Investment

So I'm doing research for potentially good investments to include in my portfolio and I found that investing in distressed properties can be a good investment.  This is why:

First, I normally would pass on such an investment - but given the recent volatility in the stock market and current low prices/interest rates in real estate (soon to go up) - I noticed that distressed properties have begun to show a silver lining. While researching the state of the economy and other demographic trends - I think that distressed properties are a potential "home-run"... mostly for their income potential.

Why?  Well, I'll show you an example of a property I hope to purchase.

       Price =     +$32,000
       Rehab =     +$4,000
Down Pymt =    -$7,200
Total Financed   $28,800 @ 4.5% Fixed 30YR Mortgage

It makes sense to include the cost for repairs & rehab at these low interest rates - especially since I'm putting down 20%, which brings my total amount financed under $30K (seems almost as if I'm financing a car doesn't it...?  except this is Real Estate!)

Mortgage Pymt =    -$182.41
Property Mgmt =      -$87.00
Rent Income =       +$870.00
Net Income           +$600.59/month

The rental income above is estimated based on the area's fair market rent - because my monthly net income is so high, I could lower the rent below the fair market rate if needed and still make a hefty profit after paying the mortgage.  I don't have the experience nor the time to manage the property myself, which is why I'd rather leave the maintenance, leasing, tenant background check, etc. up to a reputable property management company that will do all of this for me (for a small fee of course - not included is the one time $250 acquisition fee).

With these types of returns - distressed properties don't look so bad...especially when they are relatively new (this one is built in 2008) and in functioning neighborhoods ( I don't want to be a slumlord!).  I'm willing to take on this type of risk because of the cash flow potential and limited downside.  If I can't get someone to rent it out - then I'm stuck paying the mortgage.  But this is what the property mgmt company is for - they specialize in getting tenants into homes.

Finally, this property will prove to be an even better investment once I include my tax depreciation, interest deduction, and expense write-offs.  It's probably better to take this risk versus getting myself locked into another car note and paying a dealership for the next 5 yrs.  Just my thoughts.


July 21, 2013

Just a quick thought of mine

Click on this link to go directly to the Huffington Post article which I believe is absolutely misleading.


This article might have been so much better if more research was done and/or the article was titled "A Few Ways to Save Money on A Small Salary" instead of "How to Save for Retirement on a Small Salary".  Because this article is obviously about additional ways to save money and doesn't really help someone with a small salary facing retirement.

Currently, only 14% of the country feels comfortable having enough for their "golden years" in retirement - this statistic clearly does not include anyone currently working with a small salary.

If you have a small salary and would like to retire one day (nothing is promised), then spend your life buying income producing assets.  Buy cheap investment properties (some properties here in the US are going for $3000 or less - and it's OK to be a slum lord if you can get some income out of it).  And don't tell me you can't find $3000 - with the average car price on the road today is north of $15,000.

July 14, 2013

5 Reasons Why You Should Invest in ETFs

For the last 3 or 4 decades, the world has evolved to become more fluid, interdependent, cohesive, and
interconnected environment where either everyone learns to work together or fail individually.  Corporations now have an international presence - where social responsibility and earnings (or lack thereof) in one country could mean profits (or losses) for shareholders in an entirely different country.  Political progress, fiscal and monetary policies, and other relationships between a few countries could cause disruptions in other markets all over the world...which would potentially cause trouble with our retirement plans and other investments.

Because of all of these "potential" shocks in our newly developed world, where an event in one country could bring ripples of trouble to the assets and investments in another country - our investment portfolio should show resilience in the face of these added risks.  And ETFs are a good way to add resilience to your porfolio.  Here are 5 reasons why you should invest in ETFs:

  1. Mitigate Risk - ETFs invest in a portfolio or sector of stocks within the same industry.  This allows you to balance any bad stocks with the good (diversification).
  2. Low Fees/Expense Ratio - there are passive ETFs that do not include extra maintenance charges and fees such as that of a mutual fund.
  3. Flexibility - ETFs trade just as stocks do, and you can sell anytime.  They are very liquid.
  4. Hedge - ETFs can easily help investors create a hedge against potential losses in the market
  5. Transparency - ETFs offer investors details of the fund, including the stock holdings, weighted avg, etc.
As the world evolves - our investment portfolio must also evolve to protect our holdings and increase our assets and income.


July 3, 2013

High Dividend Stocks

Investing in dividend stocks, especially high dividend stocks, provide a stream of income that is taxed at a
maximum rate of 15% or 20% no matter how much money you receive from your investments.  I say 15% or 20% because for any amount of income equal to or below $450K - you'll be taxed at 15%, and for any amount above $450K - you'll be taxed at 20%.  You should know that for this article I am making the case to accept cash payments today in lieu of deferring income and re-investing the dividends in return for more stock.

Also, listed in this blog are 3 dividend stocks that are paying investors over 20%!  

The reason for investing in dividends and accepting cash in lieu of stock is because most of us have our earnings and/or savings for retirement already invested in stocks/bonds by way of our 401K, IRA, 403b, etc.   So we need to diversify.  Plus, when an investor invests, he/she is looking for their return on investment (ROI) rather quickly...not 30, 40, or 50 years down the road in most cases.

Basically, I'm making the case that if we were to use our lifetime working to build up multiple streams of income, instead of using our lifetime working to save up for an uncertain future...we'd be better off when our "golden years" inevitably came around.  Put it this way - if I showed up at your front door and said "pack your bags because we are going on a trip"...but I excluded details about the trip, or how long we were staying, or how much money you will need....you'd probably have a ton of questions for me...or wouldn't go on the trip.

This is the same as saving for retirement...life has already knocked at your door and said "pack your bags because we're going on a trip"...and you've already jumped in the car without a clue of where you're going or how much money you're going to need for this trip.  So you save a little and spend a little on this trip...without having a clue of how much you're going to need at the end of this trip...(i.e., the end of your working years).

If you've followed my twitter account recently, you'll notice on June 29th I made a post stating that "money is not a store of value, which is proven by the disproportionate number of people who can't retire via savings or 401K".  This means that you can only increase your steams of income ...so that you can have additional income coming in whether you're working or not.  You can't store money because it's liquid...it'll leak away from you.

--OK back to dividends--

Investing in dividends and taking cash payments today increases your discretionary income to invest in other things or use the money to live your life more abundantly. For example, if you're investing in dividends and making $400/month after taxes - you can spend (if you so desire) $400 every month because you will be receiving more money the next month...without working for it...because your money is working for you.

Some people may feel like they'd rather keep the money reinvesting into stock and making more money instead of taking out the cash payments.  That's totally up to them and nothing is wrong with that.  But obviously the increase in cash flow is far more important than storing or saving  up all of your investments...for retirement's sake.

There are 3 huge stocks that I'd like to point out because they have the strongest corporate earnings, have a very diversified energy structure, and pay over 20% of your investment in dividends!  The stocks are listed below:
  1. CIG – Companhia Energetica Minas Gerais (ADR) — 21.10% in dividend annual yield
  2. CVRR – Coffeyville Resources – 21.02% in dividend annual yield
  3. NTI – Northern Tier Energy LP – 20.48% in dividend annual yield