I made the Carnival of Personal Development too this week!
Why is personal development important? Because you need to alter your thinking in order to get rich!
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Monthly Archives: May 2006
Carnival of Personal Finance or I Love Free Publicity
I got a mention at the Carnival of Personal Finance hosted by Frugal Life.
Check out all the great tips!
Saving, Spending and Investing Philosophy
How you think about saving, spending and investing [about money in general] affects where you end up financially. If you think wealth is limited and you’ll never make any, you’re absolutely right. If you think wealth is unlimited and you just have to figure out how to get your share, you’ll be right too!
and you just have to figure out how to get your share, you’ll be right too!Its a self-fulfilling prophecy where your actions follow your beliefs. Either spend time learning how to make money and eventually start making a lot of it, or you give up, figure you’ll always be poor and you never figure out how get ahead in life.
Hanging out with like-minded people also has a big affect. Do you spend most of your time with people who complain about how unfair life is, how they’re always broke and how they can never catch a break? Lose them! Their negativity will drag you down too!
Always try to surround yourself with successful people, who have achieved a lot in life and are constantly looking for the next opportunity. These people usually think there’s ample opportunity in life for everyone and rarely complain about getting the short end of the stick. They take responsibility for their failures and don’t waste time blaming others for their misfortunes. A lot of them are more than willing to give you insight into how to achieve wealth yourself and usually for the price of a lunch or dinner will spend a few hours with you. Thats much cheaper than spending $5k on mentoring courses that seem so popular nowadays!
Anyway, if you’re starting out I recommend you read books that will change your thinking and get you into the mindset of becoming rich. After that you can figure out how you want to actually make money be it through stocks, commodities, real estate, a business or working longer hours.
Here are some basic investing books and when you’re done with those, you can read my favorite selection.
Getting wealthy isn’t easy. Its takes time, effort and dedication but its not impossible. Remember, no one ever got wealthy sitting at home on their couch!
On the other extreme, here’s some personal philosophy from Gene Simmons, the front man for KISS
“Be clear, be truthful.
Stand there proudly,
unapologetically,
unabashed, and say,
‘I love cash.
It will get me
everything
I want in life!'”
Info On Prosper.com
The Saturday edition of the Wall Street Journal had a good report on how Prosper.com is working out.
Based on the borrowes credit score, lenders can get between 8 and 24%. A lot of borrowers aren’t getting enough responses for their requests because the rate they are offering is too low for their credit rating [which is set by Prosper]. People with bad credit [termed as High Risk borrowers] are offering 10% when they should be offering over 20% and these requests usually generate no interest. People trying to borrow money for weddings are also having a tough time. However borrowers with stellar credit can get money for almost anything.[like trips to europe and flying lessons!]
If the loans go bad, Prosper has hooked up with 3 collection agencies who’ll then try to collect. Prosper makes a 1% cut from the borrowers and a 1/2% servicing fee from the lenders.
The author of the report had made 300 small loans with an average return of 21%. [I’m thinking that might be a typo, coz otherwise he’s funded 30% of loans through Prosper till date]. No one has defaulted although 8 people are late on the payments.
I’m not sure Prosper checks the borrowers debt-to-income ratio but I think they should.
I think I’ll try to borrow money from Prosper. Maybe run an experiment and see if I can raise $250k to invest in real estate. With 2nd mortgages on investment properties running over 10% right now, it would be sweet if I can get money for those at under 9%.
Check out this related post about investing in notes.
Tenant From Hell?
Did you guys hear about the tenant who left behind 70,000 beer cans?
Bet that put a lot of you newbie real estate investors off. Actually the story has a few positive points. For one, the tenant stayed for 8 years. Thats a really long time. There are always costs associated with cleaning up and readvertising the house. After 8 years you’d have to change the carpets and paint the walls. Maybe do some yard work. The longer a tenant stays, the less cost you have. And the $800 that the cans sold for definitely helped defray that cost. Plus he probably lost his deposit, so I think the landlord actually was happpy! I know I would be.
Financial Ignorance Is No Excuse
Q. What’s the difference between Tax Evasion and Tax Avoidance?
A. About 4 years!
BBC reports that the original Survivor winner was sentenced to 4 years for not paying tax on his $1 million winnings and some other earnings.
Richard Hatch claimed financial ignorance. Yeah, not paying taxes on money coz you didn’t think you had to or you forgot you earned it is a great excuse. Right behind that is the excuse that taxes are unconstitutional. Unfortunately, both of them land you in jail. Do not pass go, do not collect $200 and go straight to jail!
If he had taken the initiative to talk to a financial planner,he could’ve saved him some money by intelligent tax planning. Atleast he would’ve told him that he needed to pay tax on the money he made and saved him jail time!
How To Negotiate A New Car Purchase
Lawrence Salberg has a great post on saving money when buying a new car. Its only the first in a series, but its quite a good read. Considering that Lawrence used to be a car salesman, its the inside scoop!
Real Estate and Taxes
No one likes paying taxes, especially not real estate investors. Luckily, congress has been kind and offered a lot of tax breaks. Whenever you make a profit in real estate, there’s usually a way to avoid or atleast defer paying taxes.
The most well-known tax break is the 121 home owners exclusion. If you live in your property for 2 years[or 2 out of the past 5 years] you get to exclude 250k if you’re single and 500k if you’re married from your taxable income.
If you own investment real estate you cannot take advantage of this. Unless you move into it and live there for a full 5 years.
however, there are several ways to get around paying taxes on investment real
estate.
- Just pay the tax. long term is 15% fed and whatever your state tax is[max in CA is almost 10%]. If you already have several homes which you can depreciate and thereby create phantom losses, you can offset this passive gain through these passive losses.[You can deduct upto $25k of passive losses against regular income. If you have more, it gets carried forward until you have a passive gain to offset it against].
- Do a 1031 exchange to defer paying taxes on the sale.
- Put the proceeds from a sale into a Passive Annuity Trust.
- Buy and sell your property through a corporation. When you realize a profit, some of it can be expensed out and the rest can distrubuted as salary and used to fund a corporate 401k-pension plan [subject to approximately 15.5% tax]. This is good for short-term flips which would normally be clubbed with your regular income and subject to the maximum tax rate. The disadvantage with this is that you lose the ability to depreciate the losses against your regular income, although you can against corporate profits.[Atleast you do in a C-Corp. Not sure about S-Corp]
- Once you have money in your corporate 401k-pension plan, buy and sell property in it. This avoids taxation. This allows loses the ability to write off depreciation losses against regular income.
- Never sell the property. Just refinance it to pull out cash tax-free if you need it. When you eventually die, its passed on to your heirs at a stepped-up basis and they don’t pay taxes on it either!
- Invest the money in a working interest in an oil well. If set up as a real estate transaction you can do a 1031 exchange. Or they can be set up to give you a 90% write-off in the first year. [However, the deals that are set up to be tax advantageous have a higher premium, losing the benefit of not paying taxes].
Real Estate provides some of the best tax-advantageous investments available. Buy your investment real estate today!
These rules are neither complete nor may they pertain to your particular situation. Infact, they could be blatantly wrong or out-dated. Also, I’d like to stress i’m not a CPA so please consult your advisor before following any of my advice.
Make Free Calls To US
Skype has announced that until the rest of this year it’s customers will be able make free calls within the US. You have to download its client and you can then make PC-to-Phone calls for free. Its a marketing campaign to boost their client base. Since they have deep pockets [thanks to Ebay.com] its our chance to take advantage of this free offer.
Its especially useful for friends and family outside the US. They can now call us on our land-lines or cellphones at no cost to them.
Investing in Notes Or Getting The Most Returns On Your Money
Everyone always wants the highest return on their savings. Currently with interest rates being on the rise, the rate the banks offer are on the rise. INGDirect offers just over 4% for their regular savings.
For better returns, people invest in notes, both secured and unsecured. Places like Prosper.com let you lend money to people you’ve never met via the internet. Current rates are between 5.25% and 22% depending on the borrowers credit.
There’s also another company cpsnotes.com that will lend money from you to buy repossed cars and resell them. The company is listed on NASDAQ and offers 1 year terms of 8%. This is also unsecured.
Then there are the secured variety, backed by real estate. These notes offer between 6% and 18%. You can either become a hard money lender yourself and charge various points, but you’re stuck with doing the research and if something goes wrong, you need to know how to recoup your investment. You can also lend money to hard money lenders at around 10-12%. They relend to investors and make a decent spread on the money.
I’ve currently lent out some money to an investor who’s doing a condo conversion at 24%. Its been 8-9 months and so far he’s paying out regularly. I also lent a very small amount to another investor in Texas on a commercial property at 18%. He’s having a tough time making the payments. I’d go and file a case on the property, but the amount is so small, its just not worth the effort. It is secured by the real estate, so if it ever gets sold or refinanced, I’ll get my cash-back. I’d say there’s probably a 50% chance of getting my money back.
I’ve also lent some money to a developer/builder. This too is backed by real estate but the payments are on the backend. Because they’re are no payments due monthly, its structured like a partnership with me getting 75% return after 20 months.[As some of the properties are sold after 15 months, I start getting some money back]. So far its been around 10 months. Lets see how this works out.
If any of you have invested in notes or prosper.com, let me know how its worked out for you.