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January 15, 2016

Choosing An Investment Professional

Choosing an Investment Professional

Choosing an investment professional

Are you the type of person who will read as much as possible about potential investments and ask questions about them? If so, maybe you don’t need investment advice. But if you’re busy with your job, your children, or other responsibilities, or feel you don’t know enough about investing on your own, then you may need professional investment advice. But, beware, choosing an investment professional may be more difficult than you think; when you think Bernie Madoff. There are many investment professionals working who you should avoid.

Investment professionals offer a variety of services at a variety of prices. It pays to comparison shop. You can get investment advice from most financial institutions that sell investments, including brokerages, banks, mutual funds, and insurance companies. You can also hire a broker, an investment adviser, an accountant, a financial planner, or other professional to help you make investment decisions.

Some financial planners and investment advisers offer a complete financial plan, assessing every aspect of your financial life and developing a detailed strategy for meeting your financial goals. They may manage, or receive commissions from the companies whose products or services you are getting, how much they will cost, and how your investment professional gets paid.

In contrast to investment advisers, brokers make recommendations about specific investments like stocks, bonds, or mutual funds. While taking into account your overall financial goals, most brokers do not give you a detailed financial plan. Brokers are generally paid commissions when you buy or sell securities through them.

Brokerages vary widely in the quantity and quality of the services they provide for customers. Some have large research staffs. Others specialize in particular types of companies, for example, companies that are new and have never been in business before.

A discount brokerage charges lower fees and commissions for its services than what you’d pay at a full-service brokerage. But generally you have to research and choose investments by yourself.

A full-service brokerage generally costs more, but the higher fees and commissions pay for a broker’s investment advice based on the firm’s research.

The best way to choose an investment professional is to know what type of services you need. Once you know that ask your friends and colleagues whom they recommend. Try to get several recommendations, then arrange a face-to-face meeting. Make sure you get along. Make sure you understand each other. After all, it’s your money.

WARNING!! Before You Invest Always Check with the SEC and Your State Securities Regulator:

>Is the investment firm registered with the regulatory agency? Go to finra.org/brokercheck

>Is the investment registered with securities regulators? Go to sec.gov

>Have investors complained about the investment in the past? sec.gov

>Have the people who own or manage the investment been in trouble in the past? Go to investor.gov

>Is the person selling me this investment licensed in my state?

>Has that person been in trouble in my state, or with other investors in the past?

Residential Real Estate As An Investment

You May Want to Think Carefully Before Deciding on Residential Real Estate As An Investment

Residential real estate as an investment

Owner-occupied real estate is one of the best long-term investments one can make. History has shown owner-occupied real estate has produced tremendous long-term returns. In a few areas of the country the tremendous returns have even been short-term. In some cases homeowners have sold homes held 30 or 40 years, for 30 to 40 times their original cost. Other types of real estate investments, are the non-owner occupied rentals, and a combination of the owner-occupied/non owner-occupied rentals. The least expensive for maintenance cost is the owner-occupied real estate investment. The most costly is the non owner-occupied rental. The hardest part of real estate investing is to know when prices are inflated or down. To understand this you must do a lot of research or endure a lot of pain until prices stabilize. Residential real estate as an investment requires, skill, intelligence, research, intuition, a lot of time, very hard work, and luck.

The advantages and disadvantages for all three types of residential real estate as an investment is listed below.

Advantages of owner-occupied real estate are:

  • You can qualify for the lowest interest real estate loans available
  • You can qualify for low down payment consideration, of 5%-10%. There are also extra low-down payment loans for first time buyers who qualify, as low as 3% down.
  • You qualify for a full array of owner-occupied tax deductions.
  • Most owner occupied homeowners take pride and joy in maintaining their own home, so the long-term maintenance is usually reasonable.
  • Owner-occupied real-estate profits have been tremendous when held long-term.
  • There is a capital gain exclusion for taxes up to $250,000 if you have lived in the house for 2 of 5 years.

Disadvantages of owner-occupied real estate:

  • The debt carried when a home is leveraged with a mortgage loan.
  • The responsibility of up-keep, for some this is an advantage, since they enjoy the up-keep.

The next possibility for real estate as an investment is residential real estate rental property or 100% non owner-occupied property. A few investors have very good luck with rental real estate as an investment, while most find it very costly and highly stressful to deal with tenants, even when a management company is hired to collect rents and maintain the property.

The advantages of residential non owner-occupied real estate as an investment (rental property):

  • It is possible to have high returns when held long-term.
  • You can depreciate the property (this is far more advantages for property purchased prior to 1987 though, the depreciation deduction is much less after that year).
  • You get a deduction for up-keep.

Disadvantages of residential non-owner occupied real estate as an investment (rental property):

  • Non owner-occupied mortgage loans carry a higher interest rate than owner-occupied loans.
  • Required down payment for non owner-occupied loans is much higher than owner-occupied loans. In many cases requiring 20%, compared to an owner-occupied loan of 3%-10% down.
  • You must pay capital gains tax on profits, when you sell.
  • Yearly maintenance cost for residential non owner-occupied real estate is usually much higher than owner-occupied cost. Most people simply do not properly maintain property that does not belong to them.
  • Long-term maintenance cost can be phenomenally high.
  • Is difficult to find reasonably priced properties in quality neighborhoods.
  • Neighborhoods with a lot of “four rent” signs are particularly difficult to avoid vacancies.
  • Lost rents are not deductible.
  • A low quality neighborhood (that with high unemployment), brings a low quality tenant, i.e. the default rate on rent payment is high.
  • The debt carried when the rental is leveraged with a mortgage.

The combination of an owner-occupied/non owner-occupied residential real estate can be a viable consideration for those who feel some form of non owner-occupied rental real estate is a must, as an investment. An example of a combination of residential owner-occupied and non-owner occupied real estate is a four-plex where you live in one unit, and rent the other three.

The advantages of the combination owner-occupied/non-owner occupied real estate investment:

  • You can qualify for the lower interest owner-occupied mortgage loan.
  • You can qualify for the lower down payment of 10% allowed with your owner-occupied real estate.
  • You can deduct the repairs and up keep on the rental portion.
  • You are present to monitor the repairs and encourage maintenance.
  • You can depreciate the rental portion.

You have a better probability of purchasing a property in a quality community since your initial cost are lower than a non-owner occupied property. A quality community brings a higher probability of a quality tenant. Attracting quality tenants is probably the most important aspect of residential non-owner occupied investments.

Disadvantages of the combination owner-occupied/non-owner  occupied real estate investment:

  • Your tenants may know where you live.
  • You can only deduct expenses for the rental real estate portion of upkeep, but not your own.
  • You will be liable for normal capital gains taxes on the non-owner occupied portion when you sell. There is a capital gain exclusion on the owner-occupied portion.
  • In our example, it would be 25% of the profit up to $250,000. This is current as of 2004.

Laws change on just about everything,  yearly. Consult directly with current Internal Revenue publications for the latest changes.

See IRS publication 527 at www.irs.gov: Residential Real Estate Property
See IRS publication 523 at www.irs.gov: Selling Your Home

Relates Links:
10 Ways to Save Money In Any Economy
Learn to Save Money Before You Think About Investing