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My home is worth about $240K and we bought it 9 years ago for o­nly $118K. If I take a home equity loan out for its full value, would it be wise to invest the amount in laddered muni bonds?

Question: My home is worth about $240K and we bought it 9 years ago for o­nly $118K. If I take a home equity loan out for its full value, would it be wise to invest the amount in laddered muni bonds? That would give me tax-free interest. I o­nly earn about $45K per year in salary, but earned $27K from investing in bond funds last year. I need more disposable income to pay bills.

Answer: Four things you need to consider:

1) Will the return you get o­n the muni bonds be greater than the interest you pay o­n your home equity loan? A home equity line for up to 100% of the value of your home may have a higher than advertised rate due to the additional risk the lender takes by allowing you to borrow up to 100%. Since you have considerable equity in your home, consider a home equity line of up to 80 or 90% of the value. (You don’t have to take all the money out right away but by capping the amount at 80-90% you could receive a lower rate.)

So if your muni bonds are going to pay 5% and your home equity loan is charging you 6%, it’s not a good idea. Even a 1% profit margin may not be worth the effort when you factor in the transaction costs.

2) You may not be able to deduct the interest o­n your loan as “mortgage interest”. A strict reading of the IRS rules o­n mortgage interest in regards to home equity loans shows that unless you use the money for home improvements, the interest paid o­n the loan cannot be deducted as “mortgage interest”. Taking the risk of claiming that interest as a deduction is up to you. It could get disallowed in an audit and you would have to pay taxes o­n the disallowed interest amount.

3) Taking the money out of your home means you are taking o­n additional risk when it comes to your housing, bills and job. Should you or your wife lose your job, you will have a much larger mortgage payment than you currently have. (Yes, the income from the muni bonds may cover your home equity loan, but if you don’t pay your first mortgage you could risk losing the house anyway.)

But you may still want to apply for a home equity loan and not use the money. This way you have a low interest source of money to fall back o­n as an emergency fund in case either or both of you lose your job or have unforeseen bills (medical, legal, etc.). This would be much cheaper than borrowing o­n credit cards.

4) Have you considered refinancing your home and achieving a lower payment? If you have an interest rate above 6% and you plan o­n being there at least another 5 years, it is definitely worth looking into. You could refinance your home for 30 years from now at a low rate (possibly as low as 4.5%, maybe even an interest o­nly loan). Because you have considerable equity in your home and if you have decent credit, you should receive the best rates available for any loan amount that is less than 80% of the loan-to-value (LTV).

For example, assuming you took out your loan 9 years ago when rates were around 8% and you took out a 95% LTV loan, you now probably owe about $99,500. To refinance with no money down you would need to pay off the current balance plus figure in about $5000 for closing costs. A new loan today of $105,000 at 5.5% would lower your principal and interest payment (not including taxes and insurance) from about $825/month to $600/month. This would be like getting an extra $225/month.

Or if you borrow up to 80% of the value of your home ($192,000) at 5.5% you would increase your monthly payment by $265 to about $1090. If you invest the extra $87,000 in muni bonds, you will need to be earning at least 3.6% to break even (see #1 above). And consider the payment frequency o­n the muni bonds. If they are not paying you a monthly amount (vs. quarterly, annually or purchased at a discount) you will have to come up with the extra cash each month either to pay the additional mortgage or to make the payments o­n the home equity loan. Or you will have to budget your bond income to be able to cover the in-between months.

If an extra $225 would cover your monthly shortfall, your best bet may be to refinance. If you need more each month and can earn more than 3.6% o­n the muni bonds, you could either refinance and take money out (cash-out refinance), or get a home equity loan. (If you are paying 8% you really ought to refinance!)

In summary the thing to remember is that you need to be earning more o­n your investment that the borrowed money is costing you in interest.

Real estate is a huge market with many agents signing up regularly. Picking the right agent or deciding if you should use a realtor at all are decisions that can affect your bottom line.

Real estate is a huge market with many agents signing up regularly. Picking the right agent or deciding if you should use a realtor at all are decisions that can affect your bottom line.

Things to consider before signing up with a realtor?

Time frame for selling your home can be a determining factor in deciding if you need a realtor or not. If you are in a hurry to sell because of a change of job, etc., you may want to list with a good agent, after doing your homework. If you have time to sell your home, you may consider selling it yourself if you need the equity money for a down payment. If you do decide to sell it yourself, you will want to put even the smallest details into the contract. This will help avoid problems later.

Doing a little homework to find the right agent can help you sell more quickly and help you have a positive experience. Always interview several agents before deciding o­n o­ne. Here is a list of potential questions to ask:

· Where do they do their marketing? How will they get your home the exposure you need to sell? Do they advertise in the real estate magazines, TV, radio, newspaper or other publications? Ask them to give you specific details and describe successes they have had with their advertising.

· What is their background? How long have they been an agent? How many houses have they sold?

· How long does it typically take them to sell a home? What price range of homes do they list? Are they generally within the same price range or do they go after the really high-priced homes in order to make a higher commission? How many homes do they represent at o­ne time?

· Have they sold homes similar to yours before and what success have they had? Get names and address of satisfied customers from the agent.

· Is the prospective agent with a reputable agency and a member of the state and national Realtor Associations?

· What is the commission percentage they are willing to accept? See if they will list your home at a lower percentage. (A word of caution to the seller. Don’t list with an agent who has really low commission percentages. They will not focus or give your property the necessary attention to sell it.) Most realtors want six or seven percent commission. If you can get them to work for a percentage point or two lower commissions, that is money in your pocket.

· Will they refund part of their commission if you also purchase a home with them? Some realtors will give you up to o­ne percent of their commission back if you use them for both selling and buying.

The key is to find the agent that will work with you, give you good service and has a good track record. Again beware that some agents list lots of properties but have a very low success rate.

Tell the prospective agent that you will o­nly sign a contract that gives you the ability to cancel the contract if you are not satisfied with their progress after a predetermined amount of time. If the agent tells you that that’s not possible, ask whether you can list the property for three or four months instead of a year. Listing the property for an entire year with o­ne agent is not recommended. If you list for a year with an agent that does not work your property or get you results, you are locked in for a long period of time. Avoid agents that require you to lock in for a year. Remember you, the seller, are in control because you are hiring them. There are lots of real estate agents and you can find o­ne that has good credentials and will be flexible o­n the length of time required to list with them. Also be sure that when you finish listing with an agent that they will release your property so that you can pursue other options if your property has not sold.

These tips should help you if and when you need a real estate agent. Remember you as a seller call the shots. If you find the right agent, you will increase your chances of selling your home and should have a good experience.

Teaching your children about finance and financial matters can be one of the wisest investments you’ll ever make.

If you think this is about stocks, bonds, real estate, gold, jewels, etc., you’re wrong! All of these can be good investments, but your children are the wisest investment you’ll ever make. Teaching your children to be well-rounded individuals will help them out in the long run to fit into and contribute to society. As they contribute in society this in turn helps out everyone, including you as a parent.

Giving your children the right skills and knowledge can be o­ne of the most rewarding and wisest choices you’ll every make. Think about it: Who is the o­ne that should have the most influence o­n your children? It is a parent. Parents can work with their children at a young age helping them develop skills that will last a lifetime. These skills cannot be learned overnight. As parents you must let your children see you applying the skills you are trying to teach them.

There are a number of areas in which parents can help their children develop. Some of these areas would include: a good work ethic, ability to work and interact with others in many settings, good ethics and respect for the laws of the land, good understanding of financial matters and learning at a young age to work toward financial independence.

A good work ethic is a skill that is developed over time. As an employer or business owner, you appreciate the efforts that are extended in your work or business. As an employee you should feel satisfaction in working hard and accomplishing whatever task you may be working o­n and in being honest with your employer. Employees that work hard will get noticed by their employer and treated accordingly.

Teach your children at a young age to work hard and do their chores. Young children should be given chores or small jobs to do. By doing this at a young age your children will learn responsibility and learn not to quit when the going gets rough. Having a good work ethic will help determine what kind of earning power your children will have as adults. If your children can be taught these skills while they are young they are more likely to be financially secure in years to come.

Children that have been taught the skills of getting along with others in different social settings will have an advantage when they become adults. The advantage will come into play when they interact with other people in business, social, and financial settings. For example: In the business world you run into all kinds of people and you need to know how to act in order to be successful. These skills can be taught to young children by letting them interact with children similar in age and, as the children get older, be involved in activities with other children.

By doing this the children learn good social skills and witness different attitudes and types of people. The more your children have chances to interact with other children during their growing up years, the better their social skills are and the better they are at dealing with other people. During this time that your children interact with others you will want to visit with them to see if they have issues concerning the way other children act or behave. When you talk with your children you will help them understand the correct way to handle different situations that come up.

Helping your children to develop good ethics for country and laws of the land is very important. Good examples from parents are o­ne of the main keys in helping your children develop these skills. If your children see you obeying the laws of the land, including paying your taxes, they will see that this important. Talk to your children about the laws of the land. Tell them that you may not always agree with all the laws, but nonetheless they are the laws and must be followed. Let them know that as citizens there is a process that can be followed to change the laws when we don’t agree with them.

Discuss with your children why we pay taxes and what tax dollars are used for. As your children understand that tax money is what supports the government and a lot of the programs we have in society, they will begin to understand the importance of paying taxes. It would also be good to discuss with your children areas in government where the money is not spent wisely. Let them know that the government is not fiscally responsible all the time. There are areas for improvement. Discuss with your children ways you or they can get involved in government of local issues. Volunteering time for community activities will help your children gain the spirit of community service. As your children serve in the community they are more likely to become better citizens and obey the laws of the land.

Financial independence is a goal we all should be working for. It is very important that you teach your children ways to become financially independent. They are most likely to learn these skills from you as the parents. While your children are young make them aware of what you are doing in your investments and long term financial planning. When your children get older let them get involved in your financial planning and help them to do some of their own investing. If you can start setting aside some money for your children shortly after they are born, they will then have some money to start investing when they get old enough to learn and take part.

You as the parents have the greatest opportunity to influence your children to become well-rounded individuals. If you are willing to invest in your children’s future, they can develop a good work ethic, build good social skills, become outstanding citizens in their local communities and become financially independent. The investment is definitely worth it, because o­ne day your children may be the leaders of the future.

There’s been a lot of recent talk in the financial press about exchange traded funds, or ETFs. Some of you may already be familiar with them, but my guess is for most individual investors, the term “exchange traded fund” is just another bunch of financial gibberish – vaguely familiar but completely meaningless.

There’s been a lot of recent talk in the financial press about exchange traded funds, or ETFs. Some of you may already be familiar with them, but my guess is for most individual investors, the term “exchange traded fund” is just another bunch of financial gibberish – vaguely familiar but completely meaningless. Well, to artlessly coin a phrase from the movie Braveheart, “we’ll ‘ave to remedy that then, won’t we.”

In financial-speak, ETFs are hybrid investment vehicles that combine the trading flexibility of individual stocks with the diversification benefits of mutual funds. ETFs possess characteristics that make them particularly suited for investors who want a low-cost way to obtain broad exposure to specific sectors of the financial markets.

That’s mouthful, but what it really means is that ETFs are like mutual funds, o­nly better. And they are better for several reasons.

First, ETFs are cheaper than mutual funds. ETFs have extremely low annual expenses, often less than 20 basis points (0.2%). Contrast this with actively managed mutual funds whose disclosed expenses average over 135 basis points (1.35%) – and this doesn’t even include the additional 2% to 5% in loads, 12(b)-1 marketing fees, transactions costs, and soft dollar expenses mutual funds charge you but never disclose (except in the teeny-weenie small print nobody ever reads).

Second, ETFs have a lower turnover than most mutual funds. Because ETFs are passively managed and consist of a fairly static basket of stocks, they generally have little or no portfolio turnover. Contrast this with many actively managed mutual funds that can turn their portfolio over several times during the course of a year – incurring transaction fees o­n each purchase and sale.
Third, ETFs are more tax-efficient than mutual funds. Unlike actively managed mutual funds, which annually spin off taxable short-term gains and distributions to shareholders, ETFs ordinarily o­nly generate taxable capital gains when you sell them. Moreover, due to their unique legal structure, ETFs are also more tax-efficient than their passively managed index mutual fund counterparts.

Fourth, ETFs give you more flexibility than mutual funds. They can be bought and sold through your broker without restriction during the trading day, just like a traditional stock. This provides investors with significant flexibility compared to mutual fund investors, who cannot engage in transactions during market hours.

Fifth, ETFs allow you to more easily customize your portfolio than you can with passively managed mutual funds. Today, there are over 150 ETFs sponsored by a variety of institutions, including SelectSector SPDRs (State Street Global Advisors), iShares (Barclays Global Investors), HOLDRs (Merrill Lynch), and VIPERs (Vanguard). These ETFs focus o­n dozens of different market sectors, from bonds to technology, and everything in between. As a result, investors can mix and match them to achieve a desired portfolio balance, emphasizing certain sectors while staying away from others depending o­n the market environment.

Sixth, ETFs are more cash efficient than mutual funds. Since ETFs don’t need to maintain a cash position to satisfy redemptions, they can be fully invested in securities. This usually allows them to outperform a mutual fund with a corresponding basket of securities, but which incurs a substantial cash drag.

Finally, ETFs offer more sophisticated hedging options for experienced investors. Because ETFs can be bought o­n margin or sold short like a stock, they allow experienced investors to implement sophisticated hedging, market-neutral, and other alternative investment strategies.

Exchange traded funds aren’t for everyone, though. Because they are traded o­n stock exchanges, you incur a brokerage commission when you purchase or sell them. As a result, if you are making small regular contributions to your investing account, you’ll end up being swamped in commissions.

For more information about exchange traded funds, you can go to ETFConnect (www.etfconnect.com) or the American Stock Exchange website (www.amex.com). Or, feel free to take a look at my recent white paper entitled Exchange Traded Funds: Investment And Hedging Strategies at (www.flagship-capital.com).

There are a great many books and web sites devoted to real estate investing out there, but most of them concentrate on one specific area of investing. It’s often hard to find a general description of real estate investing, one that lists the various real estate investing strategies and how to get started. That’s what this article will set out to do.

There are a great many books and web sites devoted to real estate investing out there, but most of them concentrate o­n o­ne specific area of investing. It’s often hard to find a general description of real estate investing, o­ne that lists the various real estate investing strategies and how to get started. That’s what this article will set out to do.

Before beginning, you must understand that real estate investing is not a get rich quick scheme. Real estate investing can, and will, make you wealthy, but it certainly won’t happen overnight and it will require work. As you perfect your technique and gain experience, the amount of work needed to gain a lot of money will reduce, but it will take effort and persistance to make it there.

If you’re completely new to real estate investing then the o­nly sort of investing strategy you’re likely aware of is rental properties. Landlording has been around since there have been houses and people to rent them to, and it will continue to be a wealth builder. In fact, most of the ‘no money down’ real estate strategies you hear about still include rentals as part of their plan. Still, there are other ways to make money from real estate investing out there.

The next most ‘traditional’ method is to buy a fixer-upper, fix it up, and then sell it for a profit. This is commonly referred to as ‘rehabbing’ and is a very good way to make a lot of money in a
relatively short period of time. Most rehabbers won’t even look at a property unless they can make at least $20,000 of profit, and this is usually within 3-4 months time. Rehabbers tend to be experienced investors with available money, or have partners who help provide any extra cash required.

But if you’re just starting out you likely won’t have access to large amounts of money. o­ne way to get involved in this area of real estate investing without needing any money at all is to ‘flip’ houses to these rehabbers. What this entails is you going out and finding these fixer-uppers, noting all the work required to fix the place up. You then place a low offer in to the owner, taking into account the fix up price and some built in profit. o­nce you have the house under contract you then flip it to a rehabber for a small fee. This can result in several thousand dollars for you, without you having to spend a dime. ‘Flipping’ properties can be a great way to start your real estate investing career.

Another ‘no money down’ technique that’s popular o­n the late night infomercials is called ‘lease optioning’. This is basically a rent to own strategy that allows you to control a property without ever taking ownership of it. It’s a slightly more complicated strategy that warrents its own article, but it does allow you to make money in several different ways, each without ever having to spend any of your own money. If you’re not put off by longer term investments then lease options are definately worth more research.

There are other strategies that involve foreclosures and getting the home owner to sign the deed over to you, but for now I’d suggest learning more about flipping and lease options as entry-level real estate investing strategies.

How do you find properties that would make good real estate investments? Again, an entire article can be devoted to that, but there are basically two ways: you go looking for them, or you get them to come to you. The first way involves reading the newspaper classifieds and scanning the Multiple Listing Service (MLS). This is where having a great real estate agent is a must – they can get you more details o­n homes than you can view o­n the mls website, and can often let you know of great deals before they even become available to the general public.

Having home owners contact you means setting up an advertising campaign. This can involve placing ads in the newspaper, placing bandit signs at strategic locations around town, starting a direct mail campaign, etc. There are many ways to let people know that there’s a new real estate investor in town, and it would be in your best interest to try each of them to see which o­nes work best for you.

Whether you decide to go looking for deals, have them come to you, or both, they key is to be persistant. Real estate investing is a numbers game – most of the time you won’t be able to make the deal work, but every time you do it translates into thousands of dollars for you. The more owners you talk to, the more deals you’ll be able to do, the more money you’ll make.

I hope this article gives you a bit of an idea of what the world of real estate investing is like. There’s a lot to learn out there, and  all of it is very interesting. Find the area that interests you the
most, then get out there and start talking to home owners. Don’t be discouraged if you’re getting turned down a lot – just remember that when it does pay off, it will pay off big!