Got Insurance on the new home. Am I all set??

Many friends and family have purchased homes within the last year, so in celebration we should talk about everyone’s favorite topic–insurance!  Some things you might want to consider when protecting your home:

1.  Know your geographic region–are you susceptible to tornadoes, flash floods, or forest fires?  Build your insurance around that.  For example, if tornadoes touch down near your home ensure you have a sturdy roof, address garage doors by installing impact-rated pressurized doors, and have a plan to protect your windows (roll down shutters or metal panels).

2.  Check your insurance policy–your insurance should cover the cost of building a new home from scratch.  Shop around and let the insurance company know what upgrades you incorporated from a safety and security perspective (installing an alarm saved me money).

3.  Last but definitely not least–make sure you take pictures and video of your property and store a copy online or in safety deposit box.  If disaster does strike this will be worth its weight in gold as you go through the claim process…..ask me how i know!!!

http://www.jdpower.com/Homes/ratings/homeowners-insurance-company-ratings/   (provides ratings for each insurance company)

As always if you are interested in investing in real estate or stocks please give me a call or email!  Have a great week!

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Back to Formulas!! Everyone’s favorite!

Ok, ok so formulas are not a great way to spend a Sunday, but you will thank me when you purchase your first property and can look back at your performing investment and hopefully remember the bits of advice you received here!

The Debt Coverage Ratio is critical for comparing cash flow between properties.  Also, lenders use various ratios, like the Debt Coverage Ratio, to compare equity to value, estimate cash flows, and other comparisons to determine if they can loan on the asset.  As an investor, tracking the relationship between cash flow and debt in your asset is crucial because the a large portion of your asset is financed.  High leverage (done right!)=ultimate profitability

Simple formula:

I/M=R

I-net operating income

M=Mortgage Payment

R=Debt Coverage Ratio

BONUS shortcut: the rule of 72

A fast calculation for determining how long it will take an asset to double or triple is the rule of 72.  For example, say you are estimating that a Orlando, FL will see a growth rate of 9% per year.  Sooo, how long will it take for a property to double in value? 

72/I=Y

I=Interest rate

Y=Years to double

In this case it will take about 8 years to double. 

Thanks for reading and stay tuned for more posts!  If you would like to talk about owning your own real estate business please contact me or go to thethomaschristopherllc.com or follow this link for a webinar https://rent2ownmarket.infusionsoft.com/go/opportunity/thomasm/

Thanks and enjoy the football games!!

The Power of Gold??

I was asked by another stock investor if I thought gold was a great investment?  Yes it is, BUT it is defensive in nature and it has many drawbacks when compared to real estate.  Naturally, an inquisitive look came back my way and I proceeded to highlight the following points:

1.  There is no tax advantage like there is in real estate investments.  Throw in depreciation (accelerated depreciation) and it gets very interesting!

2. There is no financing when buying gold, thus no leveraging to allow you to build wealth.  This really benefits a beginner with limited funds.  In our rent2ownmarket.com business model we have investors come aboard on a tight budget and produce monetary gains in a couple of months. 

3. In contrast to real estate rental, there is no income potential. This goes the opposite way–if you mismanage your property it can hurt a bank account

4. Like stocks, precious metals are prone to manipulation.

5.  Hidden costs in gold can be much like those of real estate.  Many times buy back, liquidity (melt down), and shipping costs can cut into profits.  Remember many expenses associated with real estate are tax-deductible.

Currently, I do own gold (physical and the IAU) and silver in my stock portfolio.  It is part of my diversification strategy incorporating real estate as well.  If you are concerned about managing properties look at REITs (email for recommendations).   However, if you are ready to jump in the real estate game call/email me and we can get a game plan on paper for you.  I do deals with students and always enjoy feedback!

Happy Holidays!!!

FULL DISCLOSURE: THOMAS MUSSO IS NOT A CERTIFIED FINANCIAL PLANNER AND ALL VIEWS ARE RECOMMENDATIONS AND FOR INFORMATIONAL PURPOSES.  DUE DILIGENCE  IS SUGGESTED PRIOR TO INVESTING IN STOCKS AND REAL ESTATE.

Support our Vets and get a workout!!

Come out and run with us!

http://www.runwashington.com/veterans10k/vet10kregistration.htm

Great event for Veterans Day!!!

Diversification

Look investors, earnings are going well for many US firms and this “quantitive easing” will weaken the dollar but help global firms like Johnson and Johnson and proctor and Gamble, BUT will real estate seize up with all the foreclosure freezing talk? 

In my opinion, real estate is one of the best investments when leveraged properly and cash flows properly; however, it is foolish to dump all your cash into one investment vehicle!  Diversification is essential! 

Some ideas for diversification include:

1.  Hard assets–this can offset inflation.  Look at GLD, IAU and cash flowing real estate investments. 

2.  Equities–one area I like are global firms that have the opportunity to grow overseas and provide a yield for investors.  Please contact me for my favs in this area.

3.  Bonds–one area I like is junk bond funds that have a generous yield.  Look at JNK.

4.  Cash–I think it’s tough to be in cash with everything going the way it is, but stay disciplined and try to keep 10-15% in cash.  Why?  What if a great deal comes along, and you want to participate (think IPO or a stock you track drops in price). 

In the end, we have to major investor bomb shells in the future–higher taxes and inflation.  Not good.  Remember utilize an IRA to trade in so you can grow your investments tax-free (ROTH IRA).  Contact me with any questions about utilizing your IRA as an investment tool.  Did you know you can set-up an IRA and write checks for investments! 

Have a great week and stay motivated!

Rental Properties! An investors best friend….or not!

While talking with friends and family a common topic arises when talking real estate or investments:  how do I manage a property and protect my investment? 

Here are some quick pointers on buying, what I think is the greatest investment, rental homes:

1.  Know your market!  Is the area you are buying in a good rental market or is the price point of the investment more important.  I can say one of the most important factors is how will the property rent?  If you have no tenants how can you call it an investment?

2.   Use math!  Math and formulas tell a story.  For example, have all your expenses lined up with what you think you can get for rent.  Next, divide the net operating income by the purchase price to get the capitalization rate.   This is important because it’s a measure of how fast an investment will pay for itself.

Purchase: 100,000

Net operating income (minus expenses): 12,000

12,000/100,000

Cap rate: 12% 

3.  Make sure you calculate ALL expenses accurately.  For example, include taxes, management fee, insurance, 1-2% of the cost per year in repairs, vacancy percentage (usually around 7-8%), and interest if you finance. 

4.  If you cannot afford to invest your time please utilize a property manager.  Do you want to answer the phone and hear an angry tenant yelling about the overflowing toilet?  Later on the plumber tells you a transformer was stuck in the pipes!  Hiring a property management firm allows you to be hands off and they handle all issues with the property.   By aware they charge between 7-12% of the rent per month.  However, this is well worth the expense if they keep the place on the up-and-up!

5.  Screen tenants properly!  If you have a property management it is necessary to go over how they complete this process to make sure they are verifying income, job references, credit history, and prior rental history.  If you are managing the property yourself make sure to have a checklist of these items, and if a tenant is missing one of the above factors it might be time to cut it loose!  Remember, once a tenant is in all bets are off! 

As always please contact me with any questions and check us out at thethomaschristopherllc.com

Have a great week!

The Stock Market is Weird?!

Yes, August was brutal on many investors  in, well, just about any stock market world-wide.  So with September being a traditionally bad month….what do you do? 

Sam Stoval from Standard and Poor’s says September was down “five of five times ahead of the mid-term election during a Democrat’s first term in office” with an average return of -3.8% for the S&P 500.   Ouch!  Hey Sammy, not cool buddy!
 http://au.ibtimes.com/articles/47398/20100830/s-p-monthly-performance-mid-term-elections.htm 

B.  But….what if we get better economic data, unemployment (yes that nasty “U” word that causes so many problems!) drops, or (fingers crossed) Bush tax cuts stay?  That might make it a September to remember!  However, I would just stick with your strategy.

Here are some thoughts from AAII with small opinions from your truly on managing your portfolio.

1. Review all of your holdings to see if the reasons you bought each investment still apply. Pay particular attention to stocks that would violate your sell rules under normal market conditions. One thing that helps is if you wrote down the reasons you would sell a stock when you first bought it. If you have never done this, now is the time to start.
2. Review your asset allocation relative to your financial objectives and risk tolerance. If your allocation to bonds is too high, create a shopping list of stocks you would buy if the price were right. An often overlooked part of asset allocation is that rebalancing can help you to sell high and buy low.  My opinion is dividend paying stocks that yield more than a treasury (MO, PG, a REIT or an MLP). 
3. Assess how much downside risk you really think there is. As of Monday’s close, the S&P 500 was trading at 13.2x projected 2010 earnings of $79.50 per share. Even if we assume the forecast is too optimistic, it does leave a margin for error. Furthermore, if September lives up to its reputation, ask yourself whether a 3% or 4% drop in stock prices is large enough to justify tearing apart your portfolio and risking the chance that you won’t get back into the market fast enough to take advantage of any rebound. After all, Hirsch found that during mid-term election years, the best three performing months were October, November and December.
4. Take a more defensive stance with your stock holdings. Be careful of “short” funds that short the market as they can generate larger losses because of tracking error.  Stay with stocks that everyone needs (General Mills, Proctor and Gamble, even MCD).  These stocks pay you to hold them and usually do not fluctuate as much when things are in the toilet. 

 In the end, if this makes your stomach cringe and you are sweating just call me and I can explain how we invest in real estate, give a 15% APR on your monies, and back the investment with a note and deed.  Again, you invest with us and deal with JUST US!  We do not have a clearinghouse or some secretary….I answer my phone and you talk to me!   Check us out at thethomaschristopherllc.com or if you are interested in a new business venture call me at 571-723-6439. 

Have a great holiday weekend! God Bless!

When Do I Buy an Investment Property?

Many investors in this market say, “When is it a good time to buy a property?” 

Good question but that answer can depend on many factors:

1.  How is YOUR local real estate market?  Have you “farmed” a local area/neighborhood and know the how foreclosures are trending, short sales, crime, or how the school district compares with other areas?  Is it an attractive area that families want to live in and how are the prices holding up?  Are home values declining or is the property priced so attractively, even with a large drop in prices, it is still a deal?

2.  What are the comparables on the investment you are looking at?  This means a local home (I prefer within a 1 mile radius), relatively same square footage, and similar lot size.  Find a realtor to pull comps at http://www.realtor.com/?source=web or get a quick peek at the area at www.zillow.com (on a side note: I find zillow to be close to values in some parts of the country and WAAAY off in other parts!).  

3.  Have you evaluated your strategy? Meaning: if you are rehabbing are you utilizing hard money or investors?  Or, is this deal a small rehab to a rental?  Does the home you want to invest in support the strategy and have you had a second opinion?  Good practice: have an appraiser run the numbers or have a BPO conducted on the property….

4.  Are you in touch with any other investors and are they investing in the local area as well?  Although this might be the last resort, ask around the REIAs to see who is dabbling in the area.  Some might not want to reveal their hand, but it is amazing when you take someone out to lunch how fast you can find a partner or an investor to help you out! 

5.  Remember to run the numbers and double-check your strategy! If you have any questions please reach out to me!  Happy investing!

ALL work….and NO EXERCISE OR PLAY!? No WAY!

At times life can seem to disappear before our eyes…..

When I blink, and the week is over it usually means I did not take a night or a couple of hours to stop and breathe. 

So, Tom, how do you expect me to fit in a workout or night out….I work all day!?

Ok, ok….try this:

1.  Find out when your body is at its peak (are you a morning or evening person?).  Once you have this is there time to create 30-40 minutes for a quick workout?

2  Wake up a half-an-hour earlier in the morning and go for a walk or run. 

3.  Take a longer lunch and make it up at the end of the day or come in earlier.

4.  Breathe!  Are your stress levels exploding?  Find a quiet place  (bathroom, closet, conference room)and breathe deeply in through your nose and out through your mouth.  Get that bad air out of your lungs and meditate about something positive.  Try: http://www.mayoclinic.com/health/relaxation-technique/SR00007/NSECTIONGROUP=2 

5.  Try a new workout to shock your body.  Yoga is a great way to stretch and strengthen.  How about P90X?  It will hurt for a couple of weeks, but after you get used to the diet and workouts you will never feel better….

6.  Pay for a workout program! If you don’t go you are loosing money. Many classes are available in your local area and include: karate, spinning, yoga, cardio, weight training, or jogging.   Check out your yellow pages. 

7.  So if you cannot workout, how about a trip to the zoo or to a jazz club?  Get away from the office and the grind and enjoy a night with just you, your friends or significant other….enjoy the relaxation for an evening!  You can try a movie, night club, romantic dinner, evening walk, or a good book. 

Ok, ok, so you have NO time at all!  This might take an early wake-up on Saturday and Sunday to get a workout in or a little time for you….remember creativety is key and please comment on any successes you have had. 

Have a great week!

Communicating with Your Team

As travel, family, hobbies, and other activities take us away from our team, it is imperative we have the communication skills to let our team know we care about their opinions and communicate updates about the organization. 

Some suggestions:

1.  Build a culture of understanding in your organization.  A good way to create this is to provide transparent financials and business models.  If your team does not  understand the business, how can they make you more money?

2.  Schedule communication!  A manager/CEO can do this by having group brainstorming meetings, one-on-one time with team members, or informal email chains discussing relevant items.  Find out what fits in your organization: does email work the best or will a Monday morning meeting work?  Ask your team for suggestions.

3.  Evaluate yourself- are you overbearing in meetings?  For example, you come prepared and lead a great meeting, but are you turning team members off because of your domination of the meeting? 

4.  Recognize team members-you might have heard this a million times but home many days out of the month do you recognize someone?  A simple “thank you” goes a long way and lets the team member know they are appreciated.

5.  Follow up-when the meeting is over send an email or memo reinforcing what was covered and encourage communication in the future. 

In the end, it is critical to have a communication strategy.  Building this in the infancy of your business will reinforce how your team members communicate and over a period of time become second nature to them.

Have a great week!