Real Estate Resources for New Investors

*This post originally appeared on www.michaelmorrow.org.

If you want to be a successful real estate investor, then you have to do your research and build up your knowledge base. With so much information out there, though, you might not be sure where to start. Which resources are worth pursuing and which resources should you avoid? Below are some of the top real estate resources for both new and veteran investors alike. While this isn’t a complete list, it is a great starting point as you walk down the path of real estate investment.

Real Estate Listings

The obvious first step to becoming a real estate investor is actually purchasing a property, and you can’t purchase a property if you don’t know what’s available. Today there are numerous websites that feature local real estate listings. Zillow and Trulia are two of the most popular. Zillow is particularly useful because it gives you access to various helpful statistics that will give you more insight into particular neighborhoods.

Property Assessments

Property assessments are essential to understanding the true value of a property as well as how much of your money will go toward taxes. In many cases this information is online, but it can be difficult to locate. Patriot Properties and Vision Government Solutions are two helpful sites that feature extensive databases of property assessments. State & Local Government on the Net is another resource that can help you find property assessments for a particular area. The site doesn’t actually list the property assessments, but it lists local government websites by their particular topics.

Trends

If you want to be a knowledgeable real estate investor, then you should have some awareness of what’s trendy in home design. Houzz focuses on highlighting the latest trends in home design. The site is a great resource for inspiration. Plus it features a database of local professionals who you can hire to do repairs, interior design, and other services.

Books

One of the best ways to increase your real estate knowledge is to read a book. Here is a list that will help you get started. It features seven of the best books for new investors. One book that’s not on the list that you should still check out is Real Estate Finance & Investments written by William Brueggeman and Jeffrey Fisher. The book is currently in its fourteenth edition, and it’s used in college classrooms around the country. After reading the book, you will definitely feel more comfortable with the entire investment process.

Learn More About Sequence of Return Risk

*This post originally appeared on Michael Morrow Financial Planner.

One of the biggest concerns that retirees have is whether their nest egg will be large enough to support them during retirement. The worst case scenario that every retiree fears is experiencing a market downturn just as he or she is ready to enter retirement. Since retirees need to draw from their retirement portfolio in order to live, they must be aware of and prepared to deal with sequence-of-returns risk.

In my article Jack Bogle Warns: Prepare for Two Massive Market Declines in The Next Decade, I wrote: “In simple terms, sequence of return risk means that in retirement, it can be more critical when you get returns than what returns you get.” Investopedia defines sequence-of-returns risk as “the risk of receiving lower or negative returns early in a period when withdrawals are made from an individual’s underlying investments. The order or the sequence of investment returns is a primary concern for retirees who are living off the income and capital of their investments” (Investopedia – Source).

While investors don’t have to worry about sequence-of-returns risk before retirement, it becomes a big issue during retirement. If you plan to retire soon and you want to limit sequence-of-returns risk, keep reading for some tips and strategies.

Limit Risk

When you make risky investments there’s always the chance of losing your money. For example, if your portfolio only includes stocks you’re at the mercy of the market. If your stocks take a beating and you continue to withdraw money from your portfolio, you make it difficult for your portfolio to recover. At Aspen Creek Wealth Strategies we recommend a “risk bucket” strategy based on the rule of 100. If you are 65 years old then 65% of your portfolio should go into a safer bucket of assets. You can put the remaining 35% into a riskier bucket. Investors can increase their chances of a successful retirement by making wise investments and avoiding unnecessary risk.

Lower Percentage of Stocks

Another strategy to consider: during the first years of your retirement your portfolio shouldn’t include a high percentage of stocks. Over time, though, you can increase the percentage depending on the risk you feel comfortable taking. The first years of retirement are the most important. If you withdraw too much money or lose too much money as a result of risky investments, you’ll make the rest of your retirement difficult.

Don’t Overspend

One of the easiest ways to protect your retirement funds is to only withdraw the amount that you actually need. Ask yourself before making a big purchase, “Is it really necessary?” Every retiree wants to enjoy their retirement, but you don’t need to carelessly spend your money to enjoy yourself. If you withdraw your money wisely you’ll help ensure it lasts you and you don’t outlast it.

The Dangers of Buy and Hold

*This post originally appeared on Michael Morrow Financial Planner.

In general “Buy and Hold” is an investment strategy where stocks are purchased and then held on to regardless of how the market performs. While the Buy and Hold strategy has many supporters who believe it is the best investment strategy, the reality is that the strategy has many drawbacks. The strategy is especially dangerous as a retirement strategy. Some investors who are averse to risk think that Buy and Hold will limit the risk they face. Unfortunately, this isn’t always the case. Keep reading to learn more about the disadvantages of Buy and Hold for retirees.

Market Downturns

The biggest disadvantage of Buy and Hold is dealing with market downturns. If the market crashes or there is a recession, you stand to lose a lot of money. For retirees, this is especially dangerous because they don’t necessarily have the time to “hold” as the downturn corrects itself. Imagine if the market experiences a downturn a year before you plan to retire. If all of your gains are erased, how will you make retirement work? Jack Bogle can preach Buy and Hold because he has enough money to tolerate heavy losses. However, normal investors may not have the safety net that Bogle has, so Buy and Hold isn’t the best strategy for them.

Length of Time

In order for Buy and Hold to work, an investor needs time. Yet if an investor chooses the wrong stocks and holds on to them year after year, he or she may not see any significant gains. Many Buy and Hold supporters recommend investing in index funds to avoid selecting the “wrong” stocks. However, even index funds are susceptible to events like market crashes. Today many Americans aren’t preparing for retirement soon enough. Therefore, they might not have the necessary time to employ a Buy and Hold strategy and see any meaningful returns by the time they’re ready to retire.

Self-Discipline

A large number of investors lose money due to their emotions. They either chase stocks that they believe will make them rich in the short run, or they sell when their stocks underperform. However, the Buy and Hold strategy requires an investor to ignore the urge to sell or buy whenever it strikes. Every investor finds it difficult to ignore these urges at various times. When it comes to savings for retirement, safety is the most important element. Yet if risk is managed correctly, it can be beneficial to a retiree’s investment strategy.

There are many alternative investment strategies to Buy and Hold that offer retirees more security and better returns. To learn more about the disadvantages of Buy and Hold as well as some alternatives read my article Jack Bogle Warns: Prepare for Two Massive Market Declines in The Next Decade (But Heeding His Advice Could Destroy Your Retirement).

Self-Directed IRAs vs. 401(k)s and Traditional IRAs

*This post originally appeared on Michael Morrow | Financial Planner.

When most people think about retirement savings they think of 401(k)s and IRAs. However, another option to consider are self-directed IRAs. While self-directed IRAs share a lot of similarities with 401(k)s and traditional IRAs, there are some important distinctions to consider. What sets self-directed IRAs apart from other options, though, are the variety of investment options available to you. Keep reading to learn more about the benefits of self-directed IRAs as well as some of the drawbacks of 401(k)s and traditional IRAs.

401(k) Drawbacks

  • There are numerous fees associated with 401(k)s, and most people don’t realize how much they’re even paying. Most of the time the fees aren’t even listed on your account statement. Over time these fees eat into your balance.
  • If you withdraw money from your account before the age of 59 ½, you’ll face penalties. Unfortunately, life doesn’t always go as planned. You might need to withdraw money due to divorce, job loss, or some other unforeseen circumstance. Take a look at this post to learn more about early withdrawal fees. In addition to the penalties, you will also have to deal with taxes. Any money taken out before the age of 59 ½ will be taxed as regular income.

IRA Drawbacks

  • Every IRA plan has contribution limits. If you contribute too much to your account, you will have to deal with IRS penalties. The penalties vary with age. For example, if you are under the age of fifty and you contribute too much, you’ll face a maximum penalty of $5,000. This article has more information on excess contributions.
  • When you reach the age of 70 ½, you have to withdraw funds from a traditional IRA account regardless of whether you need the money or not. Failing to withdraw the funds results in a penalty—typically a fifty percent tax on the minimum amount that was supposed to be withdrawn.

Self-Directed IRAs

A self-directed IRA is often a better option for investors. With a self-directed IRA, you can include assets like real estate rather than the traditional assets that most IRA accounts allow. Self-directed IRAs also offer tax benefits that aren’t available with traditional retirement options. As with every investment self-directed IRAs are not risk-free. However, investors who choose self-directed IRAs select assets that they understand well, so they are aware of the risks associated with the assets held in their self-directed IRAs.

Real Estate: Making Money Regardless of the Market’s Direction

*This post originally appeared on www.michaelmorrow.org.

One of the most difficult aspects of investing is dealing with market volatility. However, when it comes to limiting losses there is one asset that stands out above the rest: real estate. The U.S. Census Bureau reports that the price of real estate has increased in a consistent manner since 1940. While the subprime mortgage crisis limited its growth for a couple of years, it recovered relatively quickly and continues to increase in value. Keep reading to learn more about the basics of real estate investing and how you can continue to make money when the market is down.

Why Invest in Real Estate?

The best time to invest in real estate is the present. As stated above, real estate investments have attractive returns over time and some of the lowest volatility compared with other investments. Real estate is a great choice to add diversification to your portfolio. Research shows that during bear markets when stocks are down real estate usually goes up.

Research

One of the most important keys to finding success with real estate is doing your research. Before you purchase any real estate you need to understand which markets will give you the biggest return. If you plan to rent out your property to individual tenants, you should make sure you purchase property in an area that’s attractive to renters. The area around universities is usually the best location to purchase property since student tenants will be available each year.

Decide Your Approach

Do you want to be a landlord, or do you plan to flip properties? There are advantages and disadvantages to each approach, so, again, you will have to do your research. When it comes to flipping properties, you also have some decisions to make. Will you refurbish homes before selling them, or will you search for undervalued homes in growth markets and sell them without making any improvements.

Find a Mentor

If you have never invested in real estate before, you should connect with experienced investors to learn some of the pitfalls to avoid. There is likely a real estate investor club in your area, or you can reach out to individual investors and ask to buy them lunch or dinner. Target investors who are active in the area where you are interested in investing. They’ll be able to provide you with the best insight.

Get Started

The easiest way to get started is to read more about real estate investing. Visit this link to see a list of some of the top real estate books.

Home Improvement Ideas to Reduce Your Taxes

*This post originally appeared on www.michaelmorrow.org.

If you’ve recently remodeled your home then there’s a chance you can save on your taxes. In some cases, it’s possible to deduct renovation costs. You may even be able to receive a tax credit for some renovations. If you haven’t renovated your home but you’ve been considering it, take a look at the below ideas.

Make Your Home More Energy-Friendly

  • Solar – Adding solar panels to your home isn’t just good for the environment. Thanks to Solar Investment Tax Credits (ITC), you may be able to lower your tax liability by a significant amount. According to the Solar Energy Industries Association (SEIA), “the Investment Tax Credit (ITC) is currently a 30 percent federal tax credit claimed against the tax liability of residential (Section 25D) and commercial and utility (Section 48) investors in solar energy property”(Issues & Policies). After you install solar panels on your home, you can apply the ITC credit to your income taxes. This benefit may be used for up to 20 years. At the moment the tax credit is 30%; however, in 2020 it will drop to 26%. By 2023 the credit will only be worth 10%, and it will permanently remain at that amount. Therefore, right now is the best time to install solar panels on your residence. Visit the SEIA’s website to learn more about solar tax credits.
  • Simple Additions – Installing a new door or new windows that are energy-efficient are two simple ways to save on your taxes. Make sure that the products you purchase come with the Energy Star label. Also, the improvements need to be made in a home you own—not a rental property.
  • Larger Upgrades Electric heat pumps, electric water heaters, and air conditioning systems are three upgrades that can save you a significant amount of taxes. Updating your roof and adding insulation are two other projects that can save you a lot of taxes. If you’d like to learn more, take a look at this TurboTax article that provides more details on energy tax credits. Also, if you’re interested in installing a large system like a wind turbine or geothermal heat pump, look into the Residential Energy Efficient Property Credit. Just like the ITC, this credit is worth 30%.

Other Renovation Ideas

If you recently purchased your home and want to make renovations, you can take out a larger mortgage to help pay for the renovations. The IRS will let you deduct mortgage interest. It’s also possible to wait to do the renovations. Home improvement loans are tax-deductible as well. However, it’s best to pay for renovations without using any loan if possible. While you can save some money on your taxes when you use the appropriate loan, you’re also responsible for the loan’s interest.

4 Benefits of a Reverse Mortgage

*This post originally appeared on www.michaelmorrow.org.

An increasing number of baby boomers are beginning to retire. Some estimates claim that up to 10,000 individuals retire each day in the United States. If you are close to retiring, you should consider the benefits of reverse mortgages. Keep reading to learn what reverse mortgages are and how they can help improve your retirement.

Reverse Mortgages

A reverse mortgage gives homeowners the opportunity to borrow money on the value of their property. While the mortgage doesn’t have to be repaid until the property is sold or the homeowner dies, homeowners still pay property taxes and insurance. The amount of the loan is never greater than the home’s value—even if the value declines over time.

Spending and Your Portfolio

Many retirees withdraw from their investment portfolios after they retire. However, if you retire when the stock market is down then you have to deal with shrinking investments. Retirees may even find it necessary to sell investments early in order to cover living expenses. A reverse mortgage can help cover your living expenses so that you don’t have to sell your investments at the wrong time. Some reverse mortgages offer a standby line of credit. If the stock market is performing badly, you can use the credit until the market improves.

Delay Social Security Benefits

In general, retirees should try to delay their social security benefits for as long as they can. The earliest age that a person can claim benefits is 62. However, the benefits increase for each year that a retiree waits to collect the funds. The percentage increase depends on your date of birth, and after age 70 the increases stop. A reverse mortgage can help retirees delay their benefits for as long as possible.

Help Pay IRA Conversions

Retirees with traditional IRAs may want to roll over their accounts to Roth IRAs once they retire. A reverse mortgage can be used to pay the taxes associated with this type of conversion. Converting to a Roth IRA is an appealing option to some since it can help save taxes in the long run. However, when you withdraw funds from a traditional IRA, you will owe taxes on the amount you withdraw. This is where the funds from a reverse mortgage can help you out.

Preparing for the Worst

A reverse mortgage can help you deal with unexpected expenses related to health or assisting family members who face a financial hardship. Long-term care can be very expensive, and a reverse mortgage is a great option for covering the expenses.