Avoiding New Real Estate Investments

Here's the back story.  My dad was a big proponent of owning investment real estate.   Back then, there were significant tax advantages for owning rental real estate, that are no longer available today.  At that time, one could use real estate losses, due primarily to depreciation, to offset and reduce wage income.   In addition, depreciation recovery was taxed at long term capital gains rates. 

I partnered with my dad on a few real estate investments, mainly for the tax breaks which did reduce my taxable income.  However, none of the investments did much better than break even.

Since then, those tax benefits have mostly been eliminated by the tax code changes.   Real estate losses are now limited to $25000 and only below $150,000 AGI income unless one is a "real estate professional."  This limits high income earners from using rental real estate to reduced wage income.  In addition, depreciation recapture is now taxed at 25% rate instead of the 15% long term capital gains rate.

When my parents both passed away, I inherited a partnership share in commercial rental property and vacant investment land.  The commercial property was fully paid off, long term tenants, and managed by a property management company.  The vacant land was residential property that abutted commercial properties.  Both properties were located in different states from where I resided and were relatively low effort.  After 6 years, I received an unsolicited offer by a developer for the  vacant land and it took almost 3 years to complete the deal.   The commercial property is positive cash flow, but most of the other partners are not involved leaving all the work to one other partner and me.

Based on stories I've heard, I realized I have been extremely lucky with both of these real estate investments.  They both have been profitable and relatively low effort.   However, I also realize that most real estate investments take much more effort, financial commitment and risks.  Since I am moving towards simplifying our retirement investments, I am unlikely to take on any new real estate investments, other than to invest in REIT stocks.

Are real estate investment right for some people?  Absolutely. It can be a great investment.  Doing well takes a lot of time, effort, skills and patience, which I don't want to do in retirement.

For more on The Practice of Personal Finance check back Wednesday for a new segment.

This is not financial, investment, nor real estate advice. Please consult a professional advisor.

Copyright © 2026 Achievement Catalyst, LLC

Real Estate Crash May Be Coming

Is this story an indication of the decline for real estate prices?

Chicago Office Tower Sells at an 87% Discount to Pre-Covid Price

I'm assuming the owner decided it was better to take the loss than to wait for a recovery and just tossed the keys to the lender.

For more on Reflections and Musings, check back every Saturday for a new segment.

This is not financial, real estate nor investment advice. Please consult a professional advisor.

Copyright © 2026 Achievement Catalyst, LLC

Countered Real Estate Offer at Asking Price

And it worked.

Many years ago, I inherited some vacant land in another state.  My dad had purchased it as an investment.  Originally, it was zoned residential and had a house with a resident who was the previous owner.  She became a renter and passed away a few years later.   The house fell into disrepair and was eventually had to be demolished. 

After my parents passed away, I inherited the vacant lot.   It was adjacent to and across the street from already developed commercial properties.  Fortunately, for me the real estate taxes were relatively low since it was zoned residential.  

The property had been appraised for about 8 times the purchase price in 2006.   Of course, 2006/2007 was the peak of the real estate market before the great recession.  It's estimated value when I inherited it was about 2.5 times the purchase price.  Since I had no personal funds invested and the RE taxes were low, I was OK with being patient to wait for the price to rise to 8X again.

After few years, I received an unsolicited offer for the property at 3.5X the purchase price.  I wasn't interested in selling at that price and ignored it for 6 months.  The agent would periodically call and check on my interest.  In the meantime, a second agent contacted me with a low ball offer from about 2.5 times purchase price.   I told him I already had another offer and his was the lowest.

I was hoping that the two buyers would start a bidding war, to my advantage. However, both agents asked me to counter offer first, which was somewhat of a predicament for me since I was an accidental land owner inexperienced in real estate.  

I researched what to do on the Internet.   Basically, the recommendation was to always make a counter offer, even if it is at the asking price.   This made me remember when a neighbor turned down a offer for her house at $5000 below the asking price of $125,000.  She didn't bother to counter.  The seller did revise their offer and my neighbor didn't receive another offer for 6 months.

In my case, I called the agent of the higher bidder and countered at the asking price of 8X the purchase price.  The agent went ballistic becoming very rude and insulting, implying that my price was unrealistic, and said he would have been able to increase 30%, but not over 100%.  I listened but did not respond.

Then,  I disappointedly called the lower bidder agent, expecting a similar response,  and told him the same counter offer.   To my surprise, his answer was, " We accept," and we started working on a sales contract.

Lesson learned, " Always make a counter offer, even if it is the asking price."   Of course, YMMV.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial nor real estate advice. Please consult a professional advisor.

Copyright © 2026 Achievement Catalyst, LLC

Stress Tested Strategies

The COVID-19 pandemic and ensuing lockdowns have stress tested a number of personal finance strategies that have benefited from a strong economy and an 11 year bull market.   Some of these strategies are having their fatal flaws exposed during the Coronavirus crisis.  IMHO, here are some that I believe are being stress tested the most:

• FIRE practitioners.   FIRE stands for Financial Independence Retire Early.   I have generally been skeptical of most practitioners.   Some "early retirees" are men that become Stay at Home Dads, while their wife continues working and covering health insurance through her company.   When I was growing up, that was called a single income family, not retiring early. (If I used that definition, my mom retired at 30 when I was born.)   Other retirees are doing freelance employment, e.g. blogging, and earning significant income to cover most of their living expenses.   I think that is great, but to me is not "retired."    Another group of retirees have saved about $1 million and plan to make that last 40+ years, probably supplementing with blogging income.  Most FIRE bloggers are putting up a strong face.  It will be interesting to see how many survive this COVID-19 stress test.
• Retirees with health insurance but without pensions nor Social Security.  These retirees have health insurance coverage from  their previous employees, but no pension, only 401K or profit sharing plans.    In addition, they are not old enough for Social Security.  I put us in this group, although I could start taking Social Security, but have chosen not to.   Many are dependent on the growth of investments in their reitrement plans.   With the decline in the stock market, it will be a stess test of their funds.  For us, COVID-19 stress test is deja vu all over again, since the 08/09 recession happened right after I retired at 49. I learned then being 80% investing in equities was not good in a decline.   After surviving that stress test, I prepared our investments to withstand a similar decline, and the investments have done well so far.   We'll see if we survive this stress test.
• Mortgaged real estate.  With extremely low interest rates, owning rental real estate has become an attractive opportunity, especially for Airbnb hosts.   From the real estate courses I took, the strategy was to have rent cover mortage, property taxes, and routine expense.   Let the tenant pay for the property.  That works until there aren't tenants for long periods, which is happening to a number of Airbnb hosts.  Even landlords with long term tenants are experiencing some significant percentages of non-payment of rent.  I expect a significant amount of Airbnd properties to be at risk for foreclosure duing this stress test.  Personally, we own, as part of a partnership, a commercial rental property, that fortunately is paid off and is fully rented.  We only have taxes and maintenance to cover, and tenants are still paying rent, so far.

Soon the media will be reporting the survivors and failures of the COVID-19 stress test.  I think we are prepared, but there are no guarantees we will be survivors.

For more on Reflections and Musings, check back  Saturdays for a new segment.

This is not financial, retirement, nor real estate advice. Please consult a professional advisor.

Copyright © 2020 Achievement Catalyst, LLC

Real Estate

Landlords grow rich in their sleep without working, risking, or economizing." ~ John Stuart Mill

When I was young, my father always encouraged me to invest in real estate.  He had two approaches:  buildings to rent; and land to hold for appreciation.  He especially liked the tax benefits.  Back then, real estate paper passive losses, due to depreciation, could be used to offset all other income, including wages, without limitation.   So the typical strategy was to cash flow neutral before taxes, and be cash flow positive after claiming depreciation deduction.   In addition, gains from the depreciated basis were taxed at long term capital gains rates, if the property was held more than one year.

Based on my recollection, my dad on average made some profit on rental properties, mainly through depreciation deductions and having renters pay the mortgage.  His best investment in rental property was through a partnership with other real estate investors.  His second best was his personal home.   He made significant profits on buying investment land and reselling years later, but these involved some luck in picking a good location for future development.

Other than co-owning one rental property with my father, I didn't invest in real estate other than owning a home.

Nowadays, owning investment real estate is no longer as lucrative.  First, the tax code has changed, eliminating the deduction of passive losses (due to depreciation) for most landlords who are above an income threshold.  Also, depreciation recapture is now taxed at ordinary income tax rates, with a cap of 25%. 

As for buying investment land, the best opportunities are often long ago purchased, with remaining plots requiring long wait times, perhaps a lifetime, for significant profit since growth has slowed.

In addition, rental real estate does involve work, or the hiring of a property management company.  There is also more risk nowadays, as the coronavirus pandemic as caused some renters to not pay rent, or in the case of Airbnb property owners, cancel reservations.

I became an accidental real estate investor when my parents passed away, inheriting some investment land and a 1/3 interesting in a commercial rental property.  Fortunately, the rental property's mortgage is paid off and is positive cash flow before taxes.   We also pay a property manager to do the work.   The investment land is in a good location, and the property taxes are low since it is vacant land.   So the cost of keeping the property is very low.

Even with these favorable conditions, my goal is to sell my interest in both properties and not pass the properties to my heirs.  Even though the properties are doing well as investments, they have a lot of complexities that require action from an owner, which I believe my heirs would have not interest in doing. 

For me, if I own real estate after selling these properties, it will be only through publicly traded REITs (real estate investment trusts).   REITs offer many of the benefits of owning real estate, but remove all the work, risks and headaches of actually owning property. 

For more on Crossing Generations, check back every  Thursday for a new segment.

This is not financial, investment nor real estate advice. Please consult a professional advisor.

Copyright © 2020 Achievement Catalyst, LLC

Real Estate Holdings Significantly Increased

Due to an inheritance from my parents, about 20% of our retirement and savings assets are now invested in real estate.  This is up from 0% since I don't include our house has part of retirement and savings assets, even though the mortgage is paid off.

The good news is that both properties are paid off and I have no mortgage. In addition, the rental property is positive cash flow.   The bad news is that real estate is not the booming investment it once was and both properties will require active involvement by me.   So, I am getting the opportunity to learn more about real estate.

For more on  Crossing Generations, check back every Thursday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

My New Retirement Job

Due to inheritance of property from my parents, we are now diversified into real estate. One property is commercial land, and the other property is a 33% share in a commercial rental. The real estate portion is about 15% of our total retirement and investment accounts. The proportion may be a little high, but is acceptable since acquiring the properties did not reduce existing financial assets,

At this point, I plan to keep both properties.    The land is in a the middle of a development zone that has slowed due to the recession.  While there is currently limited interest in the land, I expect the demand for development land in the area will return in 3-5 years.    The commercial rental is currently doing well and is expected to provide a regular income.

Both properties will require involvement from me, which is one reason I am no longer working part time wage jobs in retirement.  Working on these properties will be my new retirement job.  Maybe this work will become my perfect retirement job.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial, real estate or retirement advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

Housing Recovery Hindered by Student Loan Debt

Housing's Biggest Challenge: $1 Trillion in Student Loan Debt  reports one headwind for the housing market is that student loan debt is hindering young first time homebuyers.  Either they don't qualify for a large enough mortgage, nor can they save for a larger down payment.   So despite some of the lowest mortgage rates ever, there are actually less first time homebuyer purchases than normal.

While student loans generally are viewed as good, the delay of housing purchases shows student loans create economic tradeoffs and demonstrates that there are no economic free lunches, despite what some might have us believe.

For more on Crossing Generations, check back every Thursday for a new segment.

This is not financial of housing advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

Why I Always Buy Title Insurance

To date, I have purchased title insurance for both houses we owned.   I am now considering buying title insurance on land that I will inherit from my parents.  In my state, the cost of title insurance was about $300 per $100,000 of coverage.

Here's why I buy title insurance:

1. Inexpensive.   At $300 per $100,000, the insurance is very cheap.  Legal costs to address a title issue can easily exceed $1000.
2. Peace of mind.  Knowing that I have titled insurance gives me worry free ownership.  If there is an ownership issue, it will be fixed.

My understanding is that title insurance can be purchased anytime there is a transfer of title, to ensure the title is free and clear.  So my plan is to buy title insurance for the inherited land.

For more on The Practice of Personal Finance, check back every Wednesday  for a new segment.

This is not financial or real estate advice. Please consult a professional advisor.

Copyright © 2013 Achievement Catalyst, LLC

Our Approach to Buying a House

I've only purchased two homes and am definitely not an expert buyer. However, I believe our conservative approach has enabled us to pay a reasonable price, get some appreciation, and not lose too much during the housing crash. Here were the key elements to our approach:

Consider an appreciating neighborhood. Within every city, county or region, there are appreciating, stable and depreciating neighborhoods. In some cases, different types of neighborhoods exist close to each other, e.g. an appreciating neighborhood next to a stable or depreciating neighborhood.

After relocating for my first job, I rented for 2 1/2 years before purchasing a home. I eventually bought in a city neighborhood that was highly desirable among young professionals and had been for several decades. After living there for 16 years, we sold the home for about 2 1/2 times the price that I paid.

For our second home, we chose to live in the suburbs, in a highly rated school district. While we didn't have children at the time, we were planning to adopt and wanted the opportunity for a great public school education. Homes in the school district tended to appreciate more than ones in other school districts. Although affected by the housing crash, I think our home value decline was mitigated somewhat by the strength of the school system.

Consider prices at the lower end for that neighborhood. To me, it's better to buy the lowest priced house in a neighborhood versus the highest priced house. I believe the appreciation potential is better for a house at the lower end, as it will be pulled up by the other houses in the neighborhood. Also, I believe the lower priced house will have higher potential for faster resale.

In both cases, we purchased a house the was at or close to the lowest price in the neighborhood. Our current home is the smallest house in our neighborhood.

Take out a 30 year fixed mortgage, with a large down payment. In my younger days, I preferred a 15 year fixed mortgage, with a minimum down payment of 20%. However, for our latest purchase, we decided that a 30 year fixed mortgage, with no pre-payment was a better option, since it gave us more financial flexibility. In addition, we put 40% down, which kept our monthly payment much lower.

By choosing to make a larger down payment, we consciously focused on homes priced 20-30% less than what we could afford with a smaller down payment.

Even though our home value has probably declined about 20%, we are happy with our choice because of the neighborhood and the quality of the schools. We have lived in our current home for almost seven years and, for now, plan to stay for at least another ten. In the long term, as the housing market recovers, I expect a faster recovery for our neighborhood, which should allow us to recoup our losses.

For more on Strategies and Plans, check back every Monday for a new segment.

This is not financial or real estate advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Why We Chose a 30 Year Mortgage

For our most recent mortgage in 2003, we were weighing the pros and cons of a 15 year versus a 30 year mortgage. We liked the lower total payments of a shorter mortgage, and could handle the higher payments, which made a 15 year term attractive. However, we finally decided on a 30 year mortgage, since there was only a small difference in interest rates, no penalty for an early pay off, and additional payments would be used to reduce principal. Thus, we had the flexibility of paying either the higher 15 year payment, when able, or paying the 30 year payment, if funds were tight.

In hindsight, our choice was a great decision, due to the financial crisis of 2008. From 2003 to 2007, we were able to make additional payments, which effectively reduced our term to 15 years. However, in October, 2007, I took retired early in my forties, and then the bear market of 08-09 occurred, which significantly reduced our retirement savings. As we made choices to conserve cash, we were able to reduce our mortgage payment to the the 30 year level, which saved us about 31% versus the 15 year payment.

Since our mortgage was a 30 year term, we were not penalized by our lender, because we were meeting the terms of the original contract. If we had taken a 15 year mortgage, we would not have had the same flexibility to reduce our payments, with incurring penalties or possible foreclosure. Thus, choosing a 30 year mortgage gave us flexibility make higher payments, like a 15 year mortgage, or lower payments when financially challenged.

Based on our experience, we will always choose a 30 year mortgage for future real estate purchases, provided the interest difference is small, there is no penalty for early payoff and additional payments are applied to principal.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

This is not financial or real estate advice. Please consult a professional advisor.

Copyright © 2010 Achievement Catalyst, LLC

Real Estate is not a Sure Gain

I know people who are wary of investing in stocks due to the bear market of the past year. Instead, they are putting their money into real estate. While I'm not opposed to real estate, I think believe that good real estate always makes money is based on some assumptions that underestimate the risk and expenses of keeping real estate.

Here are some of the assumptions that I believe can be misleading:

Real estate value always increases with time. Over long periods for time, this assumption is true. We all know the story of settlers buying Manhattan from Native Americans for some beads. However, over short periods of time the price of real estate can decrease significantly as in the case of the Pontiac Silverdome which cost $56 million to build in 1975 and recently sold for $583,000.

Real estate is easy passive income. In my experience, real estate usually requires quite a bit of work. For rental property, there are always maintenance and repairs, collecting rents and finding new tenants. For vacant land, there is also maintenance cost, in particular to keep others from using the property without permission. Finally, there are the usual taxes that need to paid.

Leverage multiplies the gain from investment. Yes, and leverage can also quickly also eliminate the equity in a property in a declining market, as shown the CNN article 1 in 4 mortgages 'underwater' .

Real estate is not a sure thing, as the recent recession has confirmed. As with any investment, due diligence needs to be done to determine if there is a reasonable probability of getting a good return.

For more on The Practice of Personal Finance, check back every Wednesday r a new segment.

This is not financial or real estate investment advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Exploring Options in the field of Real Estate

Tomorrow, I begin the pre-licensing course work to potentially become a Real Estate agent. For the next two weeks, I will take about 2/3 of the prerequisite hours needed prior to taking the real estate licensing exam. After that, I will decide whether I like the field enough to complete the rest of the course work.

My previous experience with real estate has been purchasing two homes and being co-owner of three rental properties. In addition, I have taken some vocational courses in electrical wiring, plumbing and masonry that will help me in evaluating properties. Overall, I think I have good skills for determining the value of a property for investment purposes. When the economy recovers, I believe that real estate in our area will also recover in value.

My main reason for considering a real estate license is to be able to better identify potential good investment properties. I'm not as interested in regularly working with buyers to purchase and owners to sell. However, I'm learning that my approach may not be a sustainable option, unless I plan to invest in multiple properties, which is not the current plan.

I'm learning that the cost of maintaining a license, professional dues, and insurance is the responsibility of each agent, since they are independent contractors, i.e. self employed. The real estate broker covers most of the overhead, in return for 30 to 50% commission split. However, there is still probably a $1500 to $2500 annual out of pocket cost for the agent, which I consider too much for doing a part time business where the income is not guaranteed.

Finally, I also realize that while real estate sales has the appearance of being a flexible part time job, the reality is likely different. As with any commissioned sales position, I know I would be serving the client, which means being available according the client's schedule or needs.

In any event, taking the courses is a low risk option at this time. In addition, it will give me an opportunity to network with real estate professionals that aren't recruiting me for their firm, which will hopeful give me some less biased perspectives.

For more on New Beginnings, check back every Sunday for a new segment.

This is not financial advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Lowering our Property Tax - Doing it myself

Recently, we received the 2008 value assessment for our house. Much to my surprise, the value of our house had increased 3% from its 2005 assessment, which meant that our property taxes will be increased this year. However, based on articles I've been reading, it is more likely that our house value has fallen 18% or more. Therefore, I am filing a complaint with our county real estate office to reduce the appraised value of our home. Here are the steps I am taking:

Understand the review process. On the day I received the 2008 appraisal, I contacted our property tax office and requested information on how to revise the appraisal. In our county, the process begins with the submission of a revision request with accompanying data.

After the forms were received, I called the office again to determine the best way to present my case. The property tax office was very helpful. They clarified questions that I had about the form and I spoke to one of the property appraisers to get his recommendation on acceptable approaches to contest the home value.

Get the data. According to our tax office, sales of comparable homes, preferably in the same neighborhood, within one year of the revision date can be used to determine the value of one's house. Adjustments can be made for differences in features (e.g. garages, basements, number of bedrooms) and square footage.

From the county website, I was able to determine that six sales had occurred in my neighborhood within the two year time period. I contacted my real estate agent, who helped me purchase the house, and asked for a copy of the MLS sheets for each house.

Do the analysis. I have together a spreadsheet showing the house address, selling price, square footage, and major features (e.g. garage, number of bedrooms and baths, basements, etc.) to do an estimate of my home price.

Based on a comparison of square footage, I believe my house value is about 20% less than the county appraised value. Most of the homes have similar features and therefore, I won't be making an adjustment based on features. For example, the county appraiser pointed out that a house with a finished basement would be worth more than one with an unfinished basement.

Make a persuasive case based on reasonable values. Using data from the analysis, I plan to put together a one page summary for the basis of my appraisal price. I will also include all the supporting data, e.g. MLS sheets, sales data, and the spreadsheet analysis, which show a possible range of appraisals from a 15% reduction to a 30% reduction in value, with the average being 20%.

I will likely choose a number close to the average since a 20% reduction since it appears to be reasonable value based on the analysis.

For additional perspective, see 5 steps to slash your property taxes at MSN.com.

Finally, I have thought two situations where reducing the appraised value of our house may not be a good idea.

1. Selling the house in the near future. The appraised value will be available for prospective buyers to use in determining what price to offer. However, we plan to live here for a while and this is not a concern for now.



2. Refinancing. The revision may affect the value for loan purposes, since reducing the value will reduce the equity. For us, this probably won't be an issue since we will still have 30% equity even at the lowest appraised value.

I plan to complete and submit our documentation in February, 2009 and hope to have a favorable decision within a few weeks after submission.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial, real estate or tax advice. Please consult a professional advisor.

Copyright © 2009 Achievement Catalyst, LLC

Will 2008 Be A Good Time To Buy Real Estate?

For me, the answer is "it depends." If I were previously considering buying real estate, e.g. a personal residence or a rental property, the answer for me would be "yes." If I wasn't in the market, the answer is "no."

Since we already own a home, don't need a vacation home, and am not financially able to consider investment property, our answer is "no." Just because something goes on sale doesn't mean I should buy it to save money:-) However, here are situations in which I would consider this year a great time to buy a home:

1. Bargains: The sunny side of the real estate slump by Judi Hasson at MSN Real Estate shares some yes situations I would consider if I were in that situation:


2. Renters - When mortgage, taxes and insurance are less then current rent. In the article, a renter reduced her monthly "rent" payment by $200 a month. This is a great deal if one can avoid moving for a few years.


3. Craftsmen - If one has skills to rehab, can get a great price, and live in it while doing the work. Being able to do it oneself and live it in provides a good margin of safety.


4. Investors - An experienced and successful real estate investor and have cash available. Having one's cost of goods decline is a great way to increase profits.


5. Playing the Housing Slump - Time to Make Your Move? by Jonathan Clements in The Wall Street Journal offers another situation I would consider, i.e. helping one's children buy their first home.



6. Finally, The Brighter Side of Housing by James R. Hagerty of The Wall Street Journal shares how people previously priced out of the housing market are now able to purchase homes that were previously "unaffordable."

While it's tempting, I am not looking at the housing crisis as an opportunity to become a real estate investor, landlord or vacation home owner. At this time, I don't have the experience, time, or available money to do any of the three.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or real estate advice. Please consult a professional advisor.

Maybe It's Time To Consider Real Estate Again

"I will tell you how to become rich. Close the doors. Be fearful when others are greedy. Be greedy when others are fearful."- Warren Buffet

Since I'm a bit of a contrarian investor, the possibilities for real estate are of interest to me right now. Articles like Will Prices Hit Bottom in 2008? Yes but... are calling for continued decline through 2008 followed by a recovery. While I do believe real estate will continue to decline near term, I don't know when the bottom will happen. However, I think it is a good time to start investigating possibilities. Here's what I am considering and not considering:

Potential Investment Opportunities

Real estate ETFs. I have been considering Vanguard REIT Index ETF (VNQ) since September, 2007 when I began investigating an ETF portfolio. VNQ is currently at $63.31, down about 9% from September. In addition, it is down 28% from its high of $87.44 earlier this year. One benefit of an ETF is that it is very liquid and I can make a small investment.

Commercial real estate. Some of my dad's most successful investments were commercial real estate. His best was a partnership interest in a property that has returned four times his original cost. In addition, the rents are currently at 25% of his original cost. The second best was a property that he rented to the same business for 18 years and then sold to the business owner at a 100% gain.

While I think commercial properties are a good investment, I think many in our area are still over priced. Also, I would still like to find an opportunity that minimizes the investment and tenant risks.

Not Likely Investment Opportunities

Vacation home. While the thought of owning property in a desirable tourist location is appealing, I still can't justify the cost of having a second home which is used for limited times during the year. It seems that renting is much more cost efficient. In addition, I would feel slightly constrained in vacation locations, since I would want to utilize property that we owned. Also, I am not particularly interested in being a distant landlord for vacationers.

Single family homes. Whether for renting or renovating, I feel that effort wouldn't justify the return for me. In addition, I believe their will still be significant turmoil in this segment as adjustable rate mortgages reset over the next couple years.

If I didn't already own a home, I would consider buying a home at this time, especially if I planned to live at least five years. However, I already own a house and am happy with where we live.

Land. Owning land tends to tie up money, producing no revenue while still requiring expenses (e.g. taxes and maintenance). In my situation of being retired, I can't afford to have money tied up in an investment that doesn't have the potential to produce recurring income.

Overall, I consider myself a novice real estate investor. Other than the two homes, in which we lived, and a partnership with my dad on one property, I have no real estate investment experience. Thus, although I am investigating the possibilities with real estate, it is highly likely I won't buy any properties.

For more on The Practice of Personal Finance, check back every Wednesday for a new segment.

Photo Credit: morgueFile.com, Andrea Church

This is not financial or real estate advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Financial Lessons From My Parents

I am my parents' child, especially with respect personal finance. Many of the lessons were imprinted in me from childhood. Although I didn't know it when I was younger, these lessons have enabled me to manage my personal finances well. Here are the top five lessons from my parents:

1. Save, and then save some more. My mother is a big saver. She always managed to put part of her household allowance into a savings account. Her savings paid for the down payment of on each of their house, 5 new cars over 40 years and the down payments on investment properties.
   
   I currently save about 20% of my salary income to hopefully fund a retirement in our forties.



2. Minimize taxes. My dad would consider strategies that would reduce or defer his taxes. His main tax deferment strategies was to invest in real estate and contribute to tax deductible retirement plans.
   
   The earnings from my first summer job were used to open an IRA, resulting in no federal or state income tax liability. I also partnered with my dad on two real estate investments, which showed me the tax benefits (e.g. depreciation) of owning rental property.



3. Choose a college major that leads to a well paying and high demand job. My father had degrees in Chemical and Nuclear engineering. While he worked for different companies, he was always able to get good jobs with commensurate compensation. My mom always encouraged me to be a doctor, which I strongly considered.
   
   I followed in my father's footsteps and majored in Chemical Engineering. The year I graduated, Chemical Engineers were in high demand by oil and chemical companies, resulting in the highest paying starting salaries.



4. Invest in stocks. My dad believed the stock market was one way to achieve financial independence. He also believe good stock pickers could beat the market.
   
   Although we each had different approaches, I started investing in individual stocks soon after graduating from college. About 50% of my stock picks for the first 5 years declined significantly in value. I soon learned not losing money was as important as making money:-)



5. Always take care of oneself, because no one else will. While my dad worked hard and was loyal to his company, he also invested effort in other financial ventures such as the stock market and commercial real estate. Although he never needed it, he made sure that his property an disability insurance would cover potential damages. Finally, while he did benefit from Social Security, he believed one should bear the bulk of the responsibility for one's own retirement.
   
   I've dabbled in real estate and been moderately successful in the stock market, which has provided additional sources of income. Also, I have also made sure I have had sufficient health, disability and liability insurance coverage, which has served me well at least 2 times. Finally, I've been saving consistently since I was a teenager, and have amassed six times my salary.
   

For more on Crossing Generations , check back every Thursday for a new segment.

Photo Credit: morgueFile.com, Meg Donohue

This is not financial advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Reduce 2007 Taxes: Accelerate Deductions or Delay Income

To reduce one's 2007 taxes, a good strategy may be to accelerate deductions or delay income. This can be an especially good strategy when one's expected income is significantly higher in the current year than in the upcoming year. Also, it's a great benefit when the actions result in a moving one to a lower tax bracket. Here are some ideas that one can use.

Accelerate Deductions

1. Charitable donations. Donations to churches, universities or charities (e.g. Salvation Army or Goodwill) can easily be accelerated into the current tax year. In some cases, the organization can give one credit against a future pledge.



2. Property taxes. In my county, one can choose to pay next year's property tax in the current tax year. When one does this, two times the property tax can be used for itemized deductions. However, if one has triggered the AMT tax, additional property tax deductions will reduce one's tax liability.



3. Supplies. For the self-employed, one can purchase additional supplies or pay other legitimate expenses. Purchases should be done within reason. Three extra months of stationery supplies may be reasonable. 10 years of supplies would not.

Delay Income

1. Retirement account. Contributing to a tax exempt retirement account is the easiest way for a wage earner or a self-employed person to defer income. If one is not already maxed out, increase 401K or deductible IRA contributions.



2. Bonuses. While one cannot delay taking wage income, sometimes a bonus can be taken in the following tax year. Check with your employer.



3. Billing. If one operates on a cash basis, one can sometimes delay billing to the following tax year for services provided this year. This makes sense to do if the following year is not expected to generate as much business as this year.

Since I have been employed by a company for all of my working career, I have only used #1 and #2 for accelerating deductions and #1 and #2 for delaying income. If I should create self-employment income in the future, I will consider using #3 for each approach.

For more on Ideas You Can Use , check back every Tuesday for a new segment.

This is not financial or tax advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

Bracing For A Possible Housing Crash or Recession

Recently, the talk in media is becoming more doomsday about the housing market and the potential of recession. Executives are coming forth with comments on a housing led recession, including Angelo Mozilo , Countrywide CEO, Bill Gross, PIMCO CIO, and Alan Mulally, Ford CEO. Interestingly, these commenters are those with a large vested interest in a Fed intervention. Countrywide originates 17% of mortgages in the U.S., Mr. Gross has been betting (incorrectly) on interest rate declines for the past two years, and Mr. Mullaly is concerned about the mortgage mess spilling over to auto financing. It's not enough talk for me to be worried, yet. However, it's enough talk for me to think about what I might do if there is a further housing downturn that is accompanied by recession.

Here is my current plan:

Avoid selling in short term. We consider our house a place to live, not an investment. Our house was purchased in 2003, with plans of staying for a decade or more. I don't expect any more job relocation with my company. We like our neighbors, proximity to shopping and the general area. Our house is a great match for our lifestyle and potential family growth. The school system is excellent.

Count on our margin of safety. We made a 40% down payment on our house and borrowed 60%. Also, we did a 30 year mortgage, even though we planned to pay it off in 15 years. By doing this, we kept our mortgage payment less than 13% of our monthly income. Also, we have an emergency fund that can cover at least a year of expenses, including our mortgage payment.

Reduce real estate tax. In the event our house value declines significantly, I will petition for a reassessment of our property. If accepted, our real estate tax would be lowered significantly.

Identify investment opportunities. When there is crisis, there is also opportunity. I am still contemplating how I could have profited from the housing and subprime collapse. I have seen a significant increase in foreclosures in my area. One of my wife's cousins has found a reasonable approach for foreclosure purchases. He rents his properties with option to buy, providing income and giving the buyer the opportunity to build equity before the final purchase.

Finally, I will maintain a large cash reserve to invest, should a good option be found.

For more on Reflections and Musings , check back every Saturday for a new segment.

Photo Credit: morgueFile.com, Clara Natoli

This is not financial, real estate or investing advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC

On Being a Landlord

So You Want to Be a Landlord? at Yahoo! Finance confirms my perspective that rental income is not "passive income." Being a landlord can be the equivalent of working at a job. One needs to find tenants, evict bad tenants, maintain the property, and repair things that break. In addition, one needs to find good properties, and sell them, eventually.

To note, I am not saying that real estate is a bad investment. In fact, in Lessons From My Dad - Create Guaranteed Income, I note that real estate has been a terrific investment for my parents. My point is that rental property can be a high maintenance (no pun intended:-) investment. It can also create lost of headaches and lots of stress if one dislikes the type of effort needed.

On the other hand, hiring a good property management company can turn a high effort investment into a low effort investment. My parents' trusts own rental property that is handled by a property management company for about 5% of the rents plus expenses. This investment has been relatively low effort and stress free for them. In addition, the net income is a major part of their retirement income.

If I do get into real estate, I will be looking for similar types of property, which can be handled by a management company. I believe the best place to look is commercial real estate. When I was actively searching, I didn't find any. Perhaps during the current real estate downturn, some deals can be found.

For more on Ideas You Can Use, check back every Tuesday for a new segment.

This is not financial or real estate advice. Please consult a professional advisor.

Copyright © 2007 Achievement Catalyst, LLC