real estate Archives - The Accountancy https://www.theaccountancy.com/tag/real-estate/ Where Innovation Meets Experience Fri, 21 Feb 2020 23:06:07 +0000 en-US hourly 1 https://wordpress.org/?v=6.7.2 Predicting Your Financial Future https://www.theaccountancy.com/predicting-your-financial-future/ Thu, 19 Sep 2019 04:50:03 +0000 https://www.theaccountancy.com/?p=1030 “The best way to predict the future is to create it” (credited to Abraham Lincoln and Peter Drucker) Can you predict the future? I suspect most of you reading this would say no. For those that would say yes, perhaps you need some therapy (humor...

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“The best way to predict the future is to create it” (credited to Abraham Lincoln and Peter Drucker)

Can you predict the future? I suspect most of you reading this would say no. For those that would say yes, perhaps you need some therapy (humor intended).

Imagine Your Future Financial Self

What if I asked you: “do you feel connected to your financial future?” Behavioral finance, like any young science or field of knowledge, is a work in progress. It is now moving into its second generation and attracting bright young minds furthering our collective cause in this space. Two such individuals at Kansas State University have just published a study that suggests we might be able to predict our financial future or at least impact it depending on our ability to visualize our future financial self. The more vividly we can imagine our future financial self or the more connected we are to that mental model, and the related details of financial goals, the more we influence behavioral changes that will make it more likely we will accomplish those goals.

The “future self-continuity framework” is a new psychological framework used to investigate intertemporal choices – the process by which people make decisions about what and how much to do at various points in time when choices at one time influence the possibilities available at other points in time.

Change Your Ways?

In other words, let’s say you are 20 years from retirement and your financial advisor says you are spending too much and will not have enough assets to produce retirement income so you may live at the lifestyle of your choice. This study shows a correlation to suggest that when you hear this, most of you will change your evil ways (obscure reference to Santana) to be more likely to produce the intended outcomes in retirement, while some of you will say: “damn the torpedoes!” and continue to live it up now, as long as your vision of the future financial self is compatible.

Some people view their future self as a completely different person. However, we happen to think that visualizing exercises are very productive and necessary. The more you can do this, the greater the likelihood you can produce those results. If you can see it, you can make it happen.

How can we help you? Let’s talk about your goals — and what you, your family and your business need to thrive.

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Health Savings Account: A great option for your Health Care Plan https://www.theaccountancy.com/health-savings-account-a-great-option-for-your-health-care-plan/ Tue, 10 Sep 2019 04:53:59 +0000 https://www.theaccountancy.com/?p=1033 If you have a High Deductible Health Plan (HDHP) then a Health Savings Account (HSA) could be a fantastic, tax savings tool to incorporate into your health care plan.  To be considered an HDHP, two conditions must be met. The first is that your annual...

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If you have a High Deductible Health Plan (HDHP) then a Health Savings Account (HSA) could be a fantastic, tax savings tool to incorporate into your health care plan.  To be considered an HDHP, two conditions must be met. The first is that your annual deductible exceeds $1350 for a sole participant and $2700 for a family. Secondly, is that the annual out of pocket maximum does not exceed $6650 for an individual and $13,300 for a family plan.

Think of it Just Like an IRA

Once the account is set up, you can contribute up to $3450 per individual and $6900 per family to a pre-tax account that will grow as tax-deferred. Think of it just like an IRA, except one that allows you use to use the funds for health care costs not covered by an HDHP. The Health Savings Account gives you control, it empowers you to regulate your own health care expenses.

Distributions are not taxable

The beauty of the HSA is that your contributions are not subject to federal tax. California does tax the account, but it is a much better tax result than relying on deducting your medical expenses as itemized deductions. When used for qualified medical costs, your distributions are not taxable. Any money remaining continues to soak up deferral until the age of 65 when they are then subject to ordinary tax. Once you sign up for Medicare Part A at the age of 65, you can withdraw on the account without any tax.

Numerous Benefits Not to Be Ignored

The true beauty of an HSA is that contributions are tax-deductible.  When you need to withdraw from the account for qualified medical costs, your expenses are also tax-free, and as long as the savings account is left to grow, the growth is not taxable.  They perform better than a Flexible Savings Account and they can be used when needed. In other words, the benefits of an HSA are numerous, abundant, and not to be ignored.

How can we help you? Let’s talk about your goals — and what you, your family and your business need to thrive.

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Physical Fitness & Financial Planning https://www.theaccountancy.com/physical-fitness-financial-planning/ Fri, 30 Aug 2019 04:58:47 +0000 https://www.theaccountancy.com/?p=1037 A couple of years ago, as I was coming off the typical Holiday binge-eating period, I decided to do something about it besides the all-too-common New Years resolutions, which usually die on the road to February. This time was different. I decided to get some...

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A couple of years ago, as I was coming off the typical Holiday binge-eating period, I decided to do something about it besides the all-too-common New Years resolutions, which usually die on the road to February. This time was different. I decided to get some help. I hired a personal fitness trainer. I was amazed at the similarities of what he does with his clients and what I do with my clients.

Ask Yourself Some Questions

Ask yourself why? Why are you doing this? Why are you Training/Planning? What brought you to this point? What do you hope to accomplish because of working with your Trainer/Planner? How will you recognize success when you see it? Can you visualize it? Are you prepared to set some goals? Have some accountability?

Be SMART with your Goals

Whether you are training to lose extra weight, to run for a marathon, or planning for retirement, change of careers, or building a comprehensive financial plan as a road map for your life, it all starts with goals. But it’s not enough to say: “I want to lose weight” or “I want to save for retirement”. For goals to be effective, they must be SMART:

Specific, Measurable, Achievable, Relevant, and Time-bound. If any one ingredient is missing, the rest of the plan won’t work. Also, we should note how each item is interconnected. For instance, Relevance and Achievability must be gauged within the context of Time. If you want to lose 30 pounds in one month, that will likely not be achievable or relevant in that time frame. Nor would it be reasonable to expect that you could amass $1 Million starting from 0, within a year, by putting in $500 a month. It may seem simple, but you’d be surprised how many people have unrealistic expectations.

Distinguish Between Needs and Wants

In a fitness plan, you typically have a target number of calories to hit per day. As long as you are burning more calories than you take in, your weight goes down. In financial planning, we work with a budget. If you spend less than the budgeted amounts of income and asset values, your net worth goes up. It just means sometimes you have to say no to that dessert, the same way you say no to that expensive vacation.

In both cases, exercising discretion in your favor helps you increase that ROI – Return on Investment.

How can we help you? Let’s talk about your goals — and what you, your family and your business need to thrive.

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Real Estate as an Asset Class https://www.theaccountancy.com/real-estate-as-an-asset-class/ Tue, 20 Aug 2019 05:11:16 +0000 https://www.theaccountancy.com/?p=1040 Ideally, your financial plan includes real estate, which offers the kind of attributes that will often take the pressure off the rest of your portfolio to perform. Having the right allocation of real estate in your portfolio provides enhanced diversification and non-correlation, (assets behaving in...

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Ideally, your financial plan includes real estate, which offers the kind of attributes that will often take the pressure off the rest of your portfolio to perform. Having the right allocation of real estate in your portfolio provides enhanced diversification and non-correlation, (assets behaving in different ways, not related to the general markets at large) not to mention certain tax advantages, cash flow, and equity appreciation.

Cash Flow & Leverage – Double Edge Sword

Real estate can be costly to acquire and as a result, it begs for leverage, which is directly related and impactful to cash flow. Fortunately, in the US there is an abundance of capital, and if you have good credit, you can obtain a mortgage to acquire real estate. If you don’t have good credit, chances are you will still find a mortgage but it will cost you more to service.

The goal of any real estate investor is to produce positive cash flow each month.  Think of your mortgage like a partner who put up a big chunk of cash and reduced your risk, but you must pay them one month at a time until your loan is paid off. If you want to reduce your costs of financing, you may have to put more of your own capital at risk. In turn, this may reduce the allure of a real estate investment, as it becomes riskier.

CAP Rates = ROI

Cap rate is just another term for ROI or return on investment as applied to real estate. Cap rates allow you to compare the relative economic benefits of different real estate investments. It will indicate the efficiency of that investment. The calculation is Net Operating Income (without regard to depreciation – see next section) of the property divided by its Purchase Price. Sort of the equivalent to the P/E (Price/Earnings) ratio in the case of a stock.

As an investor, the more you have to pay for leveraging the investment, the less attractive the CAP rate of a real estate investment is, indicating a higher risk to obtain a reward.

Depreciation

Depreciation has the effect of reducing or sometimes eliminating otherwise taxable income. Since investing in real estate provides significant tax benefits in the form of depreciation write-offs, the theory is you can amortize the economic benefit of the long term investment over time, allowing you as an investor to recover due to its long term features. Real estate is the only investment that offers this benefit.

If properly positioned, real estate can offer attractive features to investors and belongs as an asset class in every portfolio.

How can we help you? Let’s talk about your goals — and what you, your family and your business need to thrive.

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Home Equity in Retirement https://www.theaccountancy.com/home-equity-in-retirement/ Sat, 18 May 2019 05:20:22 +0000 https://www.theaccountancy.com/?p=1058 For many people already in retirement, Social Security benefits and home equity constitute their biggest assets in retirement. In recent years, professional journals have shown articles by leading experts recommending strategies using the home’s equity in producing needed income, not just as a last resort...

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For many people already in retirement, Social Security benefits and home equity constitute their biggest assets in retirement. In recent years, professional journals have shown articles by leading experts recommending strategies using the home’s equity in producing needed income, not just as a last resort when all other sources have been extinguished. In fact, one could argue that your home equity should be creatively utilized in a retirement income plan that is sensible and tax-efficient.

Reverse mortgages have been greatly misunderstood as well. They are not to be taken cavalierly, as they are high-cost financing vehicles, but for certain people, in particular circumstances, they might make sense and should not be ignored.

For instance, what if you are retired and have Social Security, your IRA portfolio, and your home equity. Your IRA portfolio is not that big, and you have serious doubt as to how long it will last. Let’s say you expect to live for 25 years and your financial advisor thinks it will only last 15, assuming a reasonable rate of return. Your lifestyle exceeds what you can cover with your Social Security.

You open a Reverse Mortgage line of credit at the start of retirement, but you don’t use the money until the IRA portfolio runs out. This gives the retirement plan the most downside protection.

Of course, we caution against the careless use of a Reverse mortgage unless you completely understand all its features, the math, and its costs. Contact us now in order to get the most accurate information about your options.

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