How you are losing your A—Even though the Stock Market is way up!

As I write this article the stock market has had a fantastic rebound from its last serious downturn and most investors seem to have a little more bounce in their step than several years ago.  It seems that the market is hitting new all-time highs every other day.   I am happy that people’s investments and retirement accounts are doing better and I hope they continue to do so in the future.  However, as we all know the stock market goes up and goes down and the timing of your entrance and exit on certain investments can have a huge effect on your actual gains and losses. (never forget 1999,2001, 2008 just in recent history)

The stock market and all the emphasis put on it by almost everybody can act like a giant Magic show where you are paying attention to what the market is doing in the left hand but totally oblivious to what your overall financial picture is doing in all other parts of your life.  The traditional media’s focus on stock market investing almost to the exclusion of everything else has made most Americans singularly focused on that one part of their financial life while not paying attention to where most of their wealth is being eaten up systematically month after month and year after year.  This cannibalization of wealth happens no matter if the stock market is up or in the tank.  I call these massive wealth drains and there are 4 huge ones (along with several other smaller ones) we will cover briefly in this article.

The first and biggest expense people have over their lifetime are income and other taxes.    Even with that fact most people really have no clue how the tax system operates and that is by design by our old Uncle Sam.  Books have been written on how to reduce taxes but since our time is limited take a couple of points away from this article.  Since taxes are such a huge expense maybe you should spend some time studying one of those many books by a credible tested source and figure out how to reduce your taxes.  The only thing I have time for today is to give you this huge general idea.  The tax system is set up to penalize hourly and salaried workers while rewarding entrepreneurs and business owners.  Salaried workers pay taxes based on that they gross while business owners pay taxes based on what they net for income.  When that statement is made most people think of the fortune 400 companies getting something over on the little guys.  Keep in mind you don’t have to be a massive business to get great tax advantages.  Even the little businesses and start-up businesses get huge tax benefits.  So since that is the case, rather than complain about it and say “oh well I guess I am out of luck because I have a normal job” dig a little deeper and realize that everyone should have a small business even if you run it from your home office or kitchen table.  To qualify for tax deductions in that business The IRS says that you have to have the intent to make a profit and work in that business for a reasonable amount of time (he never defines reasonable).  When that standard is met you automatically qualify for dozens of tax deductions that you don’t get to take as an individual.  If you have losses and start-up expenses much of them can be written off against your other income from your job (limits apply so get a good business CPA to work with you) Realize that nobody (even your CPA or tax preparer) cares how much you are paying in taxes and if you don’t take time to know how it works and use it effectively you will cost yourself tens and hundreds of thousands of dollars in lost income over your lifetime plus the compounded growth that lost money would have given you over time.

Another huge wealth drain is market losses on any investment capital that you control.  So when the stock market or a piece of real estate drops significantly in value it could take years for your money just to get back to even and of course, there are certainly no guarantees that it will come back during your investment lifetime.  Compound interest is an amazing beast that even Einstein had trouble grasping so I will keep it brief.  If the compounding curve of your money is broken by market losses or premature withdrawals it has a massive effect on your final pool of wealth.  Just for fun, if you were offered a job that only lasted 36 days and you had two choices on the pay plan which one would you take?  First, you could be paid $5,000 per day at the end of every day for 36 days for a total of $180,000 of income.  Not bad for just over a month’s work!  The second option is you would be paid one cent starting on day one but that one cent would be compounded by 100% daily and payable at the end of those 36 days.  Well if you jumped at the $180,000 you missed the power of true compounding of money.  If your coworker doing the same job chose the compounding penny they would not be a millionaire…………….they would be a stinking filthy rich multi-millionaire with a check of $343,597,384!  Do the math and then tell me when you want to break your compounding curve with big losses or withdrawals. (did you know you can have money invested tracking the market without it being subject to any market losses?)

Next massive wealth drain is interest and fees paid to banks or finance companies over your lifetime.  Loaning of money (financing) has been around in some form for thousands of years.  Since the time you could pull your ox into the temple you could get a loan on it if you paid more back than you borrowed and left the ox as collateral.  Any business model that has been around that long is a winner!  However, when you’re on the borrower side of the transaction it is a wealth drain especially if most of your borrowed money is on depreciating assets such as cars, boats, equipment and any other item that goes down in value.  Now people will tell you that if you can borrow money cheap and invest in something that makes more money than you pay in interest back to the bank then you are using leverage properly.  That theory can be true but it comes with many caveats and other lessons we cannot cover here this week.  Do a simple exercise and add up all the money you have paid out over your lifetime in monthly payments on everything.  Then compare that number to the amount of money you have saved for retirement and tell me which one is bigger.  Leave your results in the comment section.  Then decide you should know more about how to be the lender and not the borrower.

Last massive wealth loss is depreciation (money lost) on items such as cars, boats, equipment, appliances and almost any other large asset we buy over our lifetimes.  Almost nobody discusses this (except me of course) and yet did you know that most people will lose more money on just their cars during their lifetime than they can ever save for retirement let alone all the other depreciation?   Do your own math on your life and find out the truth.

Think of your financial life as a big pie and as such it has many pieces to the entire pie.  Don’t fall for the magic trick of only paying attention to what is happening to your one slice of pie, which are your investment gains or losses.  Pay attention to the entire pie and start to slow down and stop your 4 massive wealth drains.

John Jamieson is the #1 Bestselling author of two books “The Perpetual Wealth System” and “Wealth Without Stocks or Mutual Funds” as well as a nationwide wealth strategist with clients in dozens of states.  Contact him at john@wealthwithoutstocks.com  or visit his site at www.wealthwithoutstocks.com

Can You Really Afford Your Car Lease?

Part two of three part series.

 

Last week I wrote an article talking about how to save boat loads of money by purchasing the car of your dreams but only after it is two to three years old.  For that article go here http://wealthwithoutstocksblog.com/2017/09/how-to-win-the-financial-battle-vs-your-automobile-2/ This week I want to talk about how leasing a car really works and some tips to save you more money on that next car purchase or lease.

What is a lease?  A lease is an agreement you enter into to rent your car for a predetermined length of time (usually 24 to 36 months) for a predetermined monthly payment, and for a set number of miles.  These payments are always less than the payment would be if you purchased the same car on the same day.  The lower payment means that the car looks more affordable on the surface but inside of that lease agreement are all kinds of terms that can cost you far more than just the lease payments.

To begin with, why is the payment less expensive with a lease than with a loan for the same car?  When you lease you are only paying for the estimated depreciation during the length of that lease rather than the entire loan balance you would pay back during that same time frame.  As an example, you borrow $25,000 and sign a 36 month loan agreement at 5% giving you a payment of $749.00 which is a very hefty car payment by today’s standards and for many people that payment is not an option based on their income and budget.  However, if you could swing that payment for those 36 months you now have a free and clear car with a lot of life left in it and if you were smart and disciplined you would continue to make that big payment but now into a tax-free account.  (More on this in next week’s part 3)

In contrast, when you sign a lease on that same car for 36 months your payment might only be $300.00 for a 36 month lease which is much easier on your pocketbook.  However, after the 36 month lease, you still have a balance to pay off if you want to own the car.  This balance is called the residual value and must be paid off either by cash or with a new loan.  Most people will not have the cash to pay off the car and so if they decide to own the car they now take on another loan for several more years to actually get the car paid off.  Most people do neither of the above but turn the car in and get the next newest model and take another lease payment and so on and so on until they are old and gray.

In essence, a lease allows you to extend your payments on a car for 6 to 8 years paying far more in payments and interest (yes there is a hidden interest rate with a lease) for the same car.  You have less of a monthly payment, but way more of them totaling more money out of your bank account.  So how about we actually have a strategy for our next car purchase instead of just winging it?  If you can’t afford the 3-year payment then how about committing to no more than a 5-year note on your car?  Can’t afford that payment either?  Then the truth is you really can’t afford that car.  Shop for something less expensive and possibly a model year or two older http://wealthwithoutstocksblog.com/2017/09/how-to-win-the-financial-battle-vs-your-automobile-2/  Now make a commitment and plan that after you pay off the car you will not buy another one for just two more years but you will continue to make a car payment to yourself into a tax-free account.   According to www.polk.com the average length of time people hang on to a car is almost 6 years so you will go one extra year for good reason.

It will look like this in real numbers.  You borrow $25,000 at 5% for 5 years on your next car creating a $470.00 payment which you pay for 5 years.  Now you own the car free and clear but what will you do with the payment you were making?  Blow it on junk if you’re like most people but you are not like most people.  You have a plan that you are working.  So now you still write that payment from your checking account every month but now the money goes to a bank (or pool of money) that you control.  You will do this for the next 24 months accumulating $11,322 plus the growth on that money (guaranteed and tax-free if we do it right) which would put you at a total of about $13,000 you have saved for yourself and your family.  That $13,000 in a tax-free account that just gets 5% compound interest will be over $35,000 for you in 20 years.  Could you do that on every car you and your spouse ever own?  If you will do it you will have a couple hundred thousand dollars more for your family!  According to The Employee Benefit Research Institute www.ebri.org  the average American only has $56,000 in savings by the time they are 65 years old.  So by mastering this car strategy, you could have 4 or 5 times that amount over your lifetime depending on when you start.

Yes, John but why do I need to make a payment back to myself instead of just letting the unused money sit in m checking account?  Simple, human nature will not allow you to truly “save” your car payments unless you get the money out of your day to day cash flow and super easy access.  Money is only saved if it is focused and not frittered away on other things we really don’t want or need.

Focused cash flow is the key to wealth and the disposition and growth of that cash flow are critical if you want to get ahead and have more options later in life.  Did you ever “save” money on a big item?  Where are those savings now?  Precisely!  Get in the habit of taking “savings” and truly making them savings by taking them out of your cash flow account and into a separate tax-free account.

Automobile ownership is a luxurious necessity in this fast paced world (in most places) and is a source of pride in owning a nice automobile.  However, the dollars at stake here are massive over time and you need a strategy on how to stop the wealth drains of depreciation and interest on these purchases.

Next week we will show you a proven system on how to actually make money on every car you ever own which is a game changing piece of information.  You can also get a jump on next week by watching a video on this very topic. Make sure you sign up for my Youtube page when you’re there watching this video! https://www.youtube.com/watch?v=JjERU7KY16c&t=74s 

 

 

https://www.polk.com/company/news/u.s._consumers_hold_on_to_new_vehicles_nearly_six_years_an_all_time_high

How to win the financial battle vs. your automobile

This time of year many people’s fancy turn to owning a new shiny car during the upcoming New Year.  Dealers will need to liquidate their current year inventories to clear space for the new models.  They will be pulling out all the stops including colorful free brochures, demonstrations, and pitches by beautiful ladies telling you all about the New Year models.  Be careful not to get sucked into these sweet offers.  A new automobile is one of the biggest wealth drains for you and your family.  However, that being said a car is very close to mandatory to survive and thrive in most areas of the country.  Let’s talk about some tips on how to save a fortune on every car you ever own over your lifetime.  Many families own at least two cars which means you are getting robbed twice as fast.  Use these simple yet powerful tips to take control of this expensive item.

  • Buy the car you want but only after it is at least two years old and three years old would be better. When you choose this option you automatically will save yourself hundreds of thousands of dollars over your lifetime.  A very real life example of this comes from my own life.  When I was 23 years old I decided I wanted to buy a nice 4 door sedan and I was drawn to the Cadillac STS model and began doing some research.  The brand new model year of that car was stickered at over $50,000 and with any kind of little extras the sticker was almost $55,000.  I was very fortunate to be doing very well financially at a young age but I was not doing that well to blow 50 grand on a new car.  I was thumbing through my local paper (yes this was before the internet changed everything) and saw an ad for a 2 ½ year old Cadillac STS for $19,500.  The car had less than 40,000 miles on it and came with an extended warranty to 90,000 miles.  It was gorgeous, shiny, and just serviced.  Of course it seemed too good to be true but then someone shared with me the secrets of buying automobiles.  The largest depreciation losses on cars occur in the first three years.  According to Edmunds.com the average car will lose 11% of its value the second you roll it off the lot and additional 15 to 20% the first year you own the vehicle. That makes your first year loss of value 30%!  The second year depreciation (loss) is another 15% for a total first two year loss of at least 45%!

 

It is important to keep in mind that the depreciation is usually calculated off of the base price and does not take into account all the extras you pay for when the car is new.  This could be the sport package that raises the price $10,000 but only gives you $2,000 back after the first year or two.  So it is very possible to find beautiful cars with manufacturer warranties still in place and pay 35 to 50% less than the first owner did when purchased new.  Since the biggest percentage of depreciation occurs in the first three years, let someone else eat the depreciation and buy it used (or pre-owned as the car dealers like to say) after the second or third year.

 

I was able to drive a gorgeous car with a warranty for far less than it would have cost me new and I drove that car for 4 years and still sold it for $3,500 and had very little repairs during my ownership that came out of my pocket. This strategy works with exotic cars as well.  When I was a young man one of the dream cars then was a Ferrari Testarossa and its price tag was around $200,000.  You can buy one now for right around $50,000 and most don’t have that many miles on them because they are babied by the owners.

 

  • Another way to save a lot of money is to try and keep your term for your loan (assuming you finance through a bank or finance company) for no more than 36 months to build equity in the car faster and save on additional interest. This will be the most difficult suggestion for most people to utilize because of that seemingly large payment if you finance it for 3 years instead of 6 or instead of just leasing the car new for less money per month.  If you finance $25,000 with a bank at 5% interest for 3 years your payment will be $749.27.  If you extend that loan out to 6 years your payment drops to $402.62 which seems much more reasonable and affordable.  It may be more affordable monthly but will cost you much more in interest and less loan buy down.  You could also lease a newer model of the car for even less monthly (read part two of this article to see why you might not want to do that even though on the surface it looks attractive)

 

If you pay over 6 years you will pay out $28,989 vs. $26,974 for a difference of $2,015 more out of your pocket to own the car.  In addition, by financing it for the 6 years your loan pay down is going at a much slower pace than the depreciation on the vehicle creating an “underwater situation” on the car almost from the initial purchase date. (Assuming you buy the car with a small down payment)  During the 3 year program you are paying down the car faster than it is depreciating giving you options if you should have to sell the vehicle.  If you truly can’t afford that 3 year payment take out the 5 year option and try to send a little extra every month toward the principle to pay it off sooner.

 

There are several other ways to save loads of money when purchasing an automobile that we will discuss in part two of this article next week.

How To Protect Your Recent Stock Market Profits

Since November of 2016 the stock market has hit record high after record high which has created an estimated 3 trillion of additional wealth for stock holders.  If you own stocks or mutual funds your money should have done well and had nice gains.

The next question is how much longer will it last?  Will it come back down to where it was?  If it comes back down might it even go down more?  The answer to all of those is NOBODY KNOWS!  People have been trying to time the stock market for generations and very few have been successful.

Do you want to give your stock market gains back during the next downturn?  Do you want to lose money when it goes back south of where it started its upward trend?  Would you like to keep your gains but not give up the possibility of future upturns?

You can reallocate some of your stocks and mutual funds into programs that protect your new found gains while allowing you to participate in future gains should they continue.  This can be done with the use of a solid fixed indexed annuity.

When you purchase a fixed indexed annuity your money will track one of various indexes (actual index depends on the product and company  chosen by you and your adviser) with the protection against any market downturns that may occur.  If you purchase an annuity and the index you track goes up over the next year or two your money will grow along with that index (actual growth rates vary greatly based on the product chosen) but if that index goes down during the same period your cash won’t go down because of that market and index loss.

You’ll need to know some terms and ask some questions about your potential investment. Here are some to consider but not an exhaustive list:

  • Will your potential gains have a “cap” on them? Meaning your gains could be limited regardless of how the actual index performs.
  • If your index potential is “uncapped” what will be the “spread” between how the index actually performs and how much your cash actually be credited?”
  • What will your participation rate be on the index? Meaning if the index goes up 10% will you get full credit or 30% of the gain? 50 or 60% of the gain? Will you get full 100% credit?
  • Will there be any fees associated with the Fixed Indexed annuity you choose? If so, what do you get in exchange for any possible fees?  Is there value in the fees or is it just taking money out of your pocket without giving any fair value in return?
  • Do you want a lifetime income rider? For a fee many of these products will provide a rider that says they will pay you a certain percentage every month for the rest of your life no matter how long you live.  So you would be guaranteed the income from the money even if eventually the money in the account is actually spent through.  What is that fee for the rider?
  • How long of an early withdrawal period does the product have? This is a program for longer term money that you don’t mind letting alone and in the program for 5 to 10 years.

These annuities qualify for a tax and penalty free roll over from IRA’s old 401k’s or any other qualified account you may own.  If you have an active 401k, 403b and like accounts, there might be some restrictions on moving the money placed on the account by your current plan administrator.  Your IRA’s could be rolled over (either all or In part) to a solid fixed indexed annuity with no issues.

Remember this is one of the 3 major types of annuities.  In addition to the Fixed indexed annuity there are also variable annuities and fixed annuities.  The fixed annuity gives a guaranteed rate of return with no risk of loss but the upside is usually on the low side.  Could be a great fit for people who like CD’s and very safe products with a guaranteed rate of growth that happens no matter what happens in any market.

A variable annuity can basically give you high rates of return but are also subject to some loss (some have floors on the loss and many do not) and are usually subject to more fees than the other types of annuities due to their active trading and money movement.

In closing, a solid Fixed indexed annuity offer strong growth with the protections of no downside risk.  If you would like more training on this particular program, feel free to visit www.perpetualpensions.com and watch the video halfway down the page.  No charge and its only 20 minutes long.

John Jamieson is a national wealth strategist and 2 time #1 Bestselling author.  He is a frequent guest on national radio shows and a contributor to some of the biggest online financial websites and magazines in the country.  He operates a national firm that focuses on showing people how to create Wealth Without Stocks or Mutual Funds.  You may contact him through his site at www.wealthwithoutstocks.com

What is a Restricted Property Trust?

Big Tax Deductions and a Secure Retirement for Business Owners using a Restricted Property Trust

How successful business owners are putting more money away for Retirement than they ever could with a Traditional Retirement Account

Trusts as a wealth building and wealth preservation tool have been around for centuries.  Every specific trust has a specific purpose for why it is set up and how it is utilized.  There is one that is designed for high income business owners to be able to put away more money for retirement than they possibly could with a traditional retirement plan.  This trust will also allow the business owner to do this on a tax deductible basis.

This also allows the business owner to legally “discriminate” against their current employees or co owners so if they choose; the owner can be the only one who participates in the plan.  This is very different from traditional retirement accounts where most full time employees must be given the opportunity to participate in the retirement plan.

The name of this trust is a “Restricted Property Trust” and is a very powerful tool for the right business owner.  It basically works like this:

  • A successful business owner is allowed to fund from $50,000 (minimum) to millions of dollars per year for at least 5 years into a restricted property trust. We will use $100,000 contributions for our examples
  • Most of this contribution will be tax deductible to the business owner because of the nature of the Restricted Property Trust
  • That contribution will be used to fund a Whole life insurance policy creating cash value and an instant death benefit for the business owner’s estate. If the business owner should die during the initial 5 year period (or subsequent 5 year blocks of time in which the trust operates 10,15, or 20 years) the death benefit finishes off the funding of the trust commitment and the balance of the death benefit  goes to the business owners family
  • The business owner makes a firm commitment to fund the trust for those 5 years with $100,000 per year and if the business owner fails to make that contribution they forfeit all previous contributions to a charity. This creates a chance of loss necessary to make most of these contributions tax deductible.  Needless to say the business owner who sets this up is confident in their income for the trust period and/or they have significant assets in other places they could easily draw on to make these contributions.
  • Depending on the situation about $70,000 of the $100,000 contribution will be tax deductible every year the contribution is made into the trust. Over 10 years this would create $700,000 worth of tax deductions directly off of your businesses income putting hundreds of thousands of dollars in your bank account (depending on your effective tax rate)
  • Also at the end of the 10 years (in this example) you will have more money in your plan in the form of cash value than you put into the plan. Let’s assume you have put in $1,000,000 into the plan over 10 years, you now might have $1,200,000 in cash value inside the plan and the life insurance policy.  The trust is dissolved and you now own the life policy personally along with all the cash and death benefit.  You have also pocketed hundreds of thousands in dollars of cash that you would have paid to Uncle Sam without this unique and powerful structure.

There are some taxes to be paid out of the cash value at the end but the balance of the cash value is all tax free and can be an entirely new tax free income stream for the business owner.

This is not simply a deferred comp plan or is it a traditional retirement account.  It is much more high level than either one of those programs.  Now let’s answer some of the most common questions we receive about this program.

Q: I already have other retirement accounts I am funding, can I still fund this trust in addition to my other accounts?

A: Yes you can.

Q: Can I be a partial owner of my business with partners?  If yes, do my partners have to participate in the program as well?

A: Yes you can be a partial owner of the business and no your partners don’t have to agree to the plan (but don’t be surprised if they want to set this up for themselves as well) and your employees do not share in this benefit at all

Q: How much money do I have to make to be able to qualify for this trust?

A: There is not a specific income level but the minimum contribution to the trust is $50,000 annually for 5 year increments.

Q: if I have the resources can I put in $300,000 or even more a year into the program?

A: Yes, but that contribution amount will be dictated by how much your business is worth and how much of a death benefit the business owner can qualify for based on that business value.

Q: What happens if I can’t make the contribution during that 5 year term?

A: You contributions will be forfeited to a qualified charity

Q:  Why is life insurance a part of this plan?

A: For various tax and trust reasons a properly structured whole life policy is a must for this program to be implemented

Q: If I should die during one of the 5 year trust periods, who gets the death benefit from the life insurance policy?

A: Your estate collects the death benefit during the trust periods and after the trust periods when you take control of the policy after the trust is dissolved

Q: Can I have access to the cash value in the life policy during the trust period?

A: No there is no access to the cash value during the trust period.

Q: I am a salaried employee who makes big income but am issued just a W2 at the end of the year.  Do I qualify to participate in this program?

A: Unfortunately this type of trust is just for business owners or partial business owners.  It is possible to receive a W2 as a salary and own the business as well.  You must own a part of the business to be eligible to participate in this plan.

Q: Because life insurance is included in this plan do I have to qualify physically as well as financially for this program?

A: Yes there will be a physical required to qualify for the underlying life insurance policy.  Most people who use this program are in their 50’s or 60’s and the vast majority get approved physically for the policy.

In closing, a restricted property trust can be a great benefit for the right established business owner with disposable income and/or other assets they can draw upon to fund the trust.  It is not meant for spotty incomes or low asset business owners.  If the business owner is stable and confident in their ability to fund the trust during the trust periods it can be a great tool.

If you would like more information on this program, please visit www.perpetualinsurance.com for a brief presentation and the information on how you can set up a personal consultation to see if this is a fit for your business.

 

Will you and Your Spouse Need Long Term Care as you Age?

The shaken 8 ball says…………………”probably”
According to government statistics if you live to age 65 there is a 70% chance that you will need Long Term Care of some kind after that point.  According to research by the Office of Health and Human Services, the average person turning 65 will incur $138,000 in future LTC services. This could be anything from a family member helping you day to day at home, a nurse professional at home, all the way to full time care needed at a long term care facility.

This is not an easy topic to think about or discuss but with tens of millions of people who will find themselves in that position in the upcoming years it is mandatory to get over the uncomfortable nature of the topic and discuss options.  You basically have 3 options at your disposal:

  1. Do nothing and hope you are in the 30% that needs nothing of the sort or pray that if you are one of the 70% you won’t need “much” care and maybe a family member could help when the time comes
  2. Plan ahead and purchase a long term care insurance policy for you and your spouse and pay monthly premiums that would cover you both (to what degree is very much individual company and policy driven)
  3. Structure your existing assets to create a “hedge” or “cushion” that could pay for long term care or home health care expenses and possibly without any monthly premiums payable. Typically referred to as “Asset based long term care”

The first option is what most people choose and it’s hard to blame them because it’s without a doubt the easiest (currently) decision to make.  Most people decide by not deciding or being properly educated about the other two options that are available.  Surely, you and your spouse will fall into the minority group of 30% or into the “Not too expensive or long” group of people in the 70% majority that will need some type of care; right?

If you are correct with your hope and wish, and both you and your spouse don’t need long term care help in your later years, than you have dodged the proverbial bullet.  If, however, your bet is a loser then you run the real possibility of not receiving the care you need or receiving the care you need but at cost of draining all the assets you have worked so hard to accumulate during your lifetime.  You run the risk of leaving behind little to no estate for your family or cherished causes.

Many people who find themselves needing long term care, but haven’t planned for the possibility, end up attempting to transfer assets out of their names into family member’s names or trusts to appear poor so they can have their care paid for by the government.  This strategy is wrong on many levels.  First there are very specific time tables when those transfers will have had to occur BEFORE you knew you needed long term care (usually years before) and most people fall well short of meeting these time tables.  This will mean you will have to exhaust almost all your assets before any help from Uncle Sam kicks in to help.

If the government is involved and paying for your care, do you think you will get the best care available allowing you to extend your life; in time and in terms of quality of life?  Just look at the VA health system and realize you will likely be getting the same sub-standard care.

Also, I have always wondered why the government should have to pay for someone’s long term care? I am not talking about the truly poor and needy as I think we have enough wealth to provide needed safety nets to that group of people.  I am talking about people who have worked their entire lives and built up assets.  Those assets are meant to be used to make your life better and if you leave money behind to your family that is an added bonus.  We are not supposed to fleece the system because we refused to plan accordingly when we had the means and ability to do so just so we can leave our family behind a chunk of money.  If you want to pay for your care and leave money behind to your family then this will require knowledge and planning.

The second option is to take out long term care insurance policies for you and your spouse.  This can be a great way to plan ahead for the possibility of needing long term care in the future.  These premiums will not be inexpensive but neither is long term care or eventual poverty.  There are many variables to these plans based on the kind of coverage you’re looking to obtain.  The upside is you will have an insurance policy that will pay out monthly to help you and your spouse pay for long term care expenses (make sure you can use the policy for home health care as well as actual long term care facilities) should they occur.  Terms and amounts will vary widely so if this is the way you decide to plan for these expenses find an agent who has much experience and knowledge about these kinds of policies and has access to several of the top carriers in this arena.

The downside of this option is that many people can’t afford the premiums and even if they can afford them, if they never use the policy they don’t get the money back (in almost all cases) just like your car insurance.  If you don’t file a claim on a car they don’t send you back all your premiums because if they did the entire system would become insolvent.  It is very possible that you could pay tens and even hundreds of thousands in premiums and yet never need the coverage.  This is a thought that drives many crazy and causes some not to decide to use this option.

(If you would like more information on this topic visit www.perpetualltc.com for a short video presentation.)

The third option is called “Asset based long term care” and it has several variations.  Let’s talk about the most common use of this strategy.  A person might opt to take a sum of money and open up a specifically designed life insurance policy.  Most of these policies are opened up with a very specific goal of generating a death benefit but that “death benefit” can be accessed during the applicant’s lifetime to pay for long term care expenses.  The applicant put in a certain amount of money (could range from $50,000 to $200,000 per applicant) and buys a life insurance policy on themselves.  Let’s use $50,000 one time single premium into the policy that buys a $200,000 death benefit and that death benefit is guaranteed not to go away after that single premium.

This is not done to have the $50,000 premium actually perform and do anything except generate the bigger death benefit.  However, there will also be cash value generated that can be accessed should the policy owner choose to in the future.  Any loans taken from the policy will reduce the eventual long term care payout.   There is a rider built into this type of policy that allows you to access your death benefit early should you need long term care. (Make sure the policy will allow you to use the benefit for home health care as well as going to a facility)  So in this case you could draw up to $200,000 to pay for long term care expenses.  If you went into a facility this would be enough to pay for about 3 years of care (depending upon where you live and what kind of facility you enter) and if you can stay at home your money would typically last longer assuming it is part time nursing or family members coming in to help you live.

What happens if I live longer than the benefit?  You will then start using other assets or consider putting in more money up front to generate a bigger death benefit.  Maybe $100,000 would generate $350,000 worth of death benefit that could be drawn on later for long term care.  There are also certain policies that might have a “lifetime long term care benefit” after that initial period of coverage is spent you might be able to pay some nominal annual premium on top of the upfront premium already paid years beforehand.  There are many options depending on the company and product chosen.

What happens if I die and never need the long term care benefit?  Simple, this is a life insurance policy so the $200,000 death benefit is paid out tax free to your heirs.  So with that up front premium you either get a higher multiple to use for your eventual long term care or you leave that amount behind for your family.

We hope this article helps shine some light and makes you aware of the options for you and your family. If you would like more information on asset based long term care please visit www.perpetualltc.com for a short video presentation.

Use Private Money to Fund Your Business and Investments

When I do seminars all over the country this is one of the top 3 topics each and every time without fail. I don’t care if the group is a bunch of beginning investors just starting out with limited cash or a group of millionaire business people. The people just starting out want to know how to access capital without all the red tape and ridiculous demands made by a traditional bank. The millionaires want to know how to loan out their own capital safely and at high rates of return. The truth is the banker you are trying to obtain money from has no idea how investment real estate or most businesses really work. You would be surprised to learn how little income most bankers actually make performing their jobs. Most people in these positions really care more about the prestige, titles, and their standing in the community than their actual incomes. It can be very frustrating dealing with a traditional banker when you are trying to achieve nontraditional goals via nontraditional methods. This is very similar to the frustration if you spent 30 days trying to put your round peg through the square hole. Most bankers are NOT business people and are governed by an old style economy way of thinking. If you want to make your entrepreneurial endeavors as easy as possible, you will need to start developing private sources of funds. Contrary to popular belief, banks don’t hold a monopoly on financing projects. There are many other sources to fund properties and projects. Just a few alternatives are:

  • Finance companies
  • Insurance companies
  • Government entities (national, state, and local)
  • Sellers of the properties and businesses (loaning you all or some of their equity by taking back a note and payments over a period of time)
  • Venture capital firms
  • Online financing options that act as a type of clearing house for all types of lenders

There is also a huge pool of billions of dollars that already exists of individuals and hedge funds that loan money to fund all sorts of projects. In our examples, we are going to talk about private individuals loaning money to fund our projects. There are people all over the country who are making private loans right now and you want to start knowing how and where to find these people.

Why Not the Banks? Banks require a huge amount of documentation and proof of everything to fund deals. This is especially true now after the last financial and banking collapse ushered in an era of even more regulations and hoops to jump through to get deals financed. Now, even simple straight-forward deals require loads of paperwork and much of it redundant. Many banks are looking for reasons not to do the deals instead of why they should do the deals. When you are talking about buying properties in the 1-4 unit category, almost every bank or mortgage company loan will be underwritten to Fannie Mae standards (FNMA) which are basically controlled by the government. If you’re looking to do anything creative, but yet safe with a financing package, you’re out of luck.

Investors unfairly received much of the blame during the last banking crisis. The fact is that most of the bad loans and way out mortgage programs such as “120% financing” and the “negative amortization loans” were approved for regular homeowners and not for investors. Investors are mainly responsible for stabilizing the real estate markets when they were in free fall. Investors pumped in many billions of dollars of their money to buy in at reduced prices. They have since been responsible for taking much of the bulk inventory off of the market so prices had a chance to stabilize and even increase off of their lows. Even with all of this, investors are many times frowned upon by FNMA underwriting standards and it becomes more and more difficult to obtain financing, even on great, safe deals. If I had a deal on my desk now that I could buy for $100,000 and was worth $200,000, and only wanted to borrow $80,000 from the bank, does that sound like a high risk loan to you? The lender should verify the true value, repairs needed, a little credit (but more character), and obtain a title commitment. After that, they should be ready to close quickly. This is not the case when dealing with traditional banks and mortgage companies. They will want a never-ending list of documents from me to prove I am good for the money. So let’s just not deal with banks to make profitable deals.

Tune in next week when we post part two of using private money to fund your business and real estate ventures. Visit us at www.wealthwithoutstocks.com

Introduction to Fast Turn “No Equity” Homes

The previous articles are what most people think of when they hear the term “flipping houses” for profits. The buy low / sell high method is as old as time and usually requires very little creativity. You must find a good deal, fund it, fix it, and flip it to a new retail buyer for cash. This is a very profitable side of the real estate business but by no means the only, or even the best, way to successfully fast turn houses.  Our next few articles will deal with how to take advantage of no equity and even negative equity homes.  There is a whole other world of profits available to you in the real estate world that very few investors will ever understand or try to implement. This end of the business is buying at higher prices but with attractive terms. When you buy with attractive terms you can also sell using creative terms, creating chunks of cash up front, monthly cash flow, and another chunk of cash a couple years down the road. This end of the business will require you to understand financing real estate at a higher level than just the buy low / sell high business.  Most of the properties in this side of the business are in nice shape, requiring little to no repairs.  My goal is to help you down the road of becoming a real estate transaction engineer.  This would mean that any motivated seller that comes your way you will have the tools to make them an offer (or several different offers) that would make sense to both of you to get a successful deal closed. I want you to be able to make an offer on any deal that comes down your lead pipeline that is owned by a motivated seller. If you only know the ugly or semi ugly house business you are limiting yourself and your income potential.

Think of these upcoming articles as a continuation of the last several real estate articles about flipping homes, but starting after the “finding” article. The “finding” part is almost identical in either case; you are looking for flat out motivated sellers that have problems that you can solve with your offer. This will open up possible deals you could have never done with just the buy low and sell high method. When a motivated seller is talking with you and you quickly realize that they owe $195,000 on a $200,000 house, will you be able to buy this at a huge discount? Almost never—except for the occasional short sale (I will not be discussing short sales because they are not nearly as profitable or common as they once were) or if the seller is willing to bring $50,000 to the closing to sell to you at this time; which will happen about never.  For example: the seller has to relocate and is motivated but cannot sell their house at a cash price that will make sense to us and our criteria. For most investors that is the end of the conversation because they are one bullet hunters; they are the “Barney Fifes” of the real estate investment world.  I do want to add one extra strategy for finding the kinds of homes we are going to talk about in this chapter. A great pool to fish in will be expired listings from your local MLS system. You will either need to be an agent with access to this system or work closely with one that is willing to share information with you in exchange for your loyalty when you or someone you know needs a good real estate agent. A great lead source (for the kinds of houses described here) are expired listings that occur every day in your own backyard. Listings expire for many reasons but one of the most common is that the list price is too high. Why is it too high? Again, there are many reasons including a thick-headed owner that does not understand the free market telling them that their house is listed too high in relation to other similar properties. The condition of the home is secondary. After all, you can always adjust the price to accommodate almost any problem with the condition. Many times the price is too high because the seller owes too much on the property and is trying to sell the home for enough to pay off the house and pay a real estate commission. If they are unsuccessful with this route they will need other solutions. Some in this position will just stay and wait but many can’t afford to stay and wait and must move now!  Tune in next week for part two of this article on how to profit from over financed properties.

How to Make Investment Real Estate Profitable

All profitable real estate investments start out at the same place and that is where you must:

Find a Good Deal

The term “good” is such a broad term and is in the eye of the beholder. My definition of good and yours might be totally different. From the perspective of a guy who has bought and sold tens of millions of dollars of real estate let’s talk about what’s a good deal. This assumes you want to buy a fixer upper cheap and rehab the property for immediate resale. This also assumes you are going to cash out of the transaction by selling to a retail buyer who wants to live in the property.

You must buy your property at a big enough discount off its retail or repaired value to allow you to make repairs, pay holding costs, pay sales costs, and make a nice profit. The first thing needed is to know what the value of the home is after you put it in nice shape. One of my first mentors, Mr. Nick Koon, told me this “son, until you know value, you know nothing!”

We need to know what similar homes in the same area are selling for and are currently on the market for offered by other sellers. You are looking for as close to your style, size, lot size, school district, age, bedrooms and baths as possible. Does the subject property have a basement? Does it have a garage? These are the biggest factors in pulling the comparables (or comps as they are referred to in the trade).

There are many sites on the internet that will allow you to gather comparables but none will be as good as the local multiple listing service (MLS for short) that Realtors™ have at their disposal to conduct their business. Working with a real estate agent (or becoming licensed yourself) will be a huge asset to your business but make sure you don’t waste their time. I would use these other sites (Zillow, Real Estate abc, Trulia) to get a ball park and then ask my agent for their “comps”. By the way, real estate agents and brokers pay big money every month to have the best information in the marketplace so they should have the best and most up to date information.

If my prospective investment home is a 3 bedroom, 2 bath, 1,500 sq ft ranch than that is the kind of home I am looking to compare against my home. On the same street or in the same subdivision would be great but at least as close as you can get. You are looking for a range of value because no two homes, however similar, are rarely exactly the same. If I see similar homes in nice shape selling for $240,000 to $260,000 then my value will be about $250,000. You would like sold comparables to be within 60 days or sooner when possible for the most accurate snapshot of current market value.

A Simple Formula to Keep You Profitable

Determine the After Repaired Value and multiply that amount by 70% to 75% maximum. Then back out your estimated repairs. This figure will give you your maximum offer on a fixer upper. It would be nice to buy it for less than this figure but this figure is the maximum you can pay.   Deviate from this formula at your own risk. This will allow you to make a nice profit on the deal. By paying more you put your profitability at risk. The “After Repaired Value” is what your property would sell for assuming it was fixed up nicely to compare with or even better than the other properties that have sold in the last 60 days.

We need to be buying this $250,000 home (depending on repairs) in the $170,000 to $190,000 range.  We will first focus on bringing good prospects and leads to us so we can find a good deal as described above. We will focus on a few key ways to find good deals in this and subsequent articles but we can only scratch the surface. I would like to give you 100 best sources to consistently find good investment prospects. Please visit www.wealthwithoutstocks.com for a free download of the 100 ways to find great deals.

  1. The local Multiple Listing Service- This is usually only a good strategy when the overall market is very slow and there are large numbers of unsold inventory on the market. During those markets there is usually enough inventories in any good sized market to keep you busy.   Most local MLS’s download to realtor.com where you can access millions of listings from all over the country. When your market is hot you can expect to find very few deals on the MLS and the rare times there is a great deal listed it will most likely have multiple offers.
  2. Getting the word out that you are a serious investor and are looking for good deals in any condition.
    1. Get business cards made stating that you buy houses, in any condition, any area, and close quickly. Buy 1,000 and leave them all over and pass them out as often as possible
    2. Over-sized flyers stating the above as well as domain name for a website. May consider passing these out (services do it for cheap) or mailing to a certain geographic location if you really want to own properties in that area
    3. Good old fashioned bandit signs still work. These are usually yellow signs with permanent marker hand written on them and placed all over town. Get a service to put them up for you but check with local zoning ordinances so you don’t get fined. Add a 21st century technique to the sign and put something like text to “webuyhouses123” for a quicker response. This will get you cell phone numbers from prospects instead of just bad email addresses
    4. Pay an ant farm to bring you deals. After you download your 100 ways to find deals find all the people on there that are around houses all day, every day and make connections with as many as possible. Tell them if they bring you a lead that ends up as a successful investment you will play them $300.00 or some figure that makes sense to both of you. You also might just pay them $10.00 per each lead sheet they bring you back filled out with the information you need to make a decision. Think of having 20 or 50 “ants” in the field bringing you solid leads. This is leverage at its finest!

If you missed my last article on real estate investing, I recommend you read that one as well.