Weak economy strengthens the incentive for a Solo 401k October 18, 2008
Posted by Jeff Nabers in Money, Self Directed IRA/401k, real estate.Tags: Solo 401k, self directed, ira, 401k, profit, real estate, invest, investing, inflation, dollar, solo, wealth, economy, meltdown
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This is quite a simple concept so this post will be very brief.
- Our weak economy has brought very high inflation: currently 13% per year.
- Future dollars are worth much less than dollars today.
- With a Solo 401k you can make tax-deductible contributions to your retirement plan in today’s dollars and pay taxes later in less valuable dollars.
- Successful entrepreneurs and self employed individuals can contribute $46,000 per year or more to their Solo 401k.
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How the little guy can profit from $4 gas June 11, 2008
Posted by Jeff Nabers in Self Directed IRA/401k.Tags: profit, energy, savings, spending, gas, prices, saving, solar, panel, power, gallon, technology, sprawl, suburban sprawl, commute
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It’s everywhere: GAS PRICES! ENERGY CRISIS!
However, this blog post is different. Turn on the tube to CNN and hear about how “We’re trying very hard to find a viable source of alternative energy to reduce our dependency on oil.” Personally, you can simply buy an electric car (right now). Those savings can be significant, but they can only go so far for your finances. Besides saving money, consider making money off of $4 per gallon gas. Assuming you don’t own Exxon or BP, here are some ideas:
The Contraction of Real Estate Demand - Sprawl Reversal
In this instance I don’t mean “contraction” in terms entire real estate markets losing value, I mean “contraction” in the sense of density. Before recent gas prices started changing the world, suburban sprawl was rampant in the U.S. The easy to obtain mortgage financing provided by the growth of the housing bubble only multiplied sprawl. In cities across America, middle class people found themselves moving to the outer suburban areas where they could have a 4,000 square foot house with a 3 car garage. They were all sipping lemonade on their huge front porches, admiring their white picket fences, and trading stories about flippers and spec homes just before getting sucker punched by gas prices and their rising Adjustable Rate Mortgage payment.
As the “look I’m rich, I swear!” house of cards finally fell, many middle class Americans are finding themselves in one of two categories: (more…)
Self Honesty: Stock Market Strategies Worth Considering June 6, 2008
Posted by Jeff Nabers in Self Directed IRA/401k.Tags: 401k, call, crash, crisis, fund, going long, hold, holding, home builder, index, inverse, investing, ira, lender, loss, mortgage, mutual fund, options, position, profit, put, risk, self directed, selling short, short selling, stock market, subprime, trade, trading
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While I generally avoid mutual funds like the plague, I don’t avoid the stock market altogether. I’ll split what I do in the stock market into two categories: long and short. Either way, I’m honest with myself in admitting that no matter what I do in the stock market, it will be speculative and risky.
Long
“Going long” means buying a stock and expecting its price or income to rise so I can sell later for a profit. There are millions of people who have access to the same information as you, and that is generally reflected in the price of that stock. If you know something non-public about the company, trading it may be illegal for you. I’ve bought individual stocks before; I just treat the situation honestly; it is speculative in nature, and I only make such trades with very small portions of my portfolio.
I don’t go long on mutual funds because I don’t know what I’m going long on. It is virtually impossible to know what I’m actually investing in when I buy shares of a fund.
Short
Selling Short… A short position is the opposite of a long one. Instead of buying low and selling high, selling short is a matter of selling high and then buying low. For me to do this, I borrow shares of a stock and simultaneously sell them at the market price in expectation of a price decrease. To close this position later, I just have to buy back shares of the same stock at the then market price and pay back the borrowed stock. If during my position the stock price declined, I profit; if the stock price increased, I have a loss.
Ex: ABC Company seems to be doomed. It’s currently trading at $50, but I think it will go much lower over the next couple months. I sell 100 shares short. This means I borrow 100 shares and simultaneously sell them for $5,000. A few months later I see the stock price has declined to $35. To close my position, I buy 100 shares back for $3,500. I pay back the borrowed shares and retain the $1,500 profit, less fees and commissions.
I like short selling more than going long. I often notice (more…)
Forced Appreciation April 28, 2008
Posted by Jeff Nabers in Self Directed IRA/401k, real estate.Tags: 401k, appreciation, cap rate, cash flow, commercial, flip, income, investment, ira, NOI, profit, property, real estate, residential, self directed, stragegy
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There’s a questionnaire that I go through with my new customers over the phone, and in it I ask if forced appreciation is part of their investment strategy. Often I hear a response of “huh?”
Forced appreciation belongs mostly to the world of commercial real estate. It’s natural for the new real estate investor to gravitate towards residential because everyone understands it. We all live in a home and pay a mortgage or rent payment. Prices fluctuate due to supply and demand, and we understand this. What many don’t understand is that commercial property is the investor’s preferred real estate. Why do I say this? I thought you’d never ask…
Property prices are always truly decided by the buyer and seller. But market value can be determined by a property appraisal. Here’s where residential and commercial RE appear to come from different planets. Residential property is almost always appraised by comparable sales. In other words, the market value is whatever everyone else is paying in that area for that type of property in that type of condition. The purpose of residential property ownership is living space. So “type of condition” means the physical condition of the structure & its fixtures. Bank lending plays an important role in how appraised value and actual purchase price interact. Most residential property is purchased with mortgage financing. Residential appraisals are based on what others are paying for similar properties, and the lender ends up only lending if the purchase price of the subject property (which is the loan collateral) isn’t much higher than the appraised value. So, when you are in the market to buy or sell, you’ll generally need to buy or sell for a price close the the appraised value.
When investing, the two things that indicate the performance of your property owned are cash flow and gains or losses upon liquidation. In residential real estate, your gain or loss upon liquidation is determined almost entirely by what other people are paying for similar properties at that time. So what’s wrong with that? Well, for starters (more…)
Green from Green April 6, 2008
Posted by Jeff Nabers in Health, Money, Self Directed IRA/401k.Tags: self directed, ira, 401k, profit, green investing, green mutual fund, green stock, energy, solar panel, investing
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In case you haven’t heard about the latest buzzword, it’s “green”. Green living, green cars, green houses, green lifestyle, and now - green investing. The mutual fund market has been quick to provide a push button conscience cleaner - SRI (Socially Responsible Investing) index funds.
Let’s take a step back and look at the situation for a moment. We are running out of the resources that make our life possible on this earth. We’ve put poison into our air, our waters, and our bodies. Why? Convenience.
Convenience got us into this mess, and I have a hunch that convenience isn’t going to get us out. Green investing can be VERY profitable. This is because better technology yields better results, and better results means savings. Savings means profit.
2 reasons why the real profits aren’t in a green mutual fund or stock
- Large companies might not want to make progress. If you have a monopoly on an inefficient product, it’s sometimes more profitable to fail at progress. Don’t believe me? Watch the documentary Who Killed the Electric Car? and decide for yourself.
- Small companies have to be innovative to grow and profit. A startup company who has to face its VC investors needs to make progress fast. There’s a little more incentive here than there is for an Exxon or most any publicly traded company or fund. Look at some of the most recent incredible successes: Microsoft, Dell, Google, Paypal, Myspace, Ebay, Facebook, etc. With each of these companies, the real innovation came early because it had to, and it’s often followed by stagnation once funded with billions of dollars (where’s Microsoft’s continuing innovation?)
If you are thinking that I recommend you search the garages of America for the next Bill Gates, Michael Dell, Larry Page, or Pierre Omidyar, then think again. Get creative, think outside of the box.
Here’s one I’ll throw at you to get the creative juices flowing (and feel free to play devil’s advocate):
Find a company that (more…)
Huge risks for huge returns - A good idea? March 19, 2008
Posted by Jeff Nabers in Self Directed IRA/401k.Tags: investment, self directed, ira, 401k, profit, risk, return
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The previous post explained how thousands of isolated self directed IRA/401k investors could all be making the same mistakes. I see that many self directed accountholders are pursuing high returns by simply taking high risks. I believe intelligent investing is about having an extraordinarily profitable risk/reward ratio - getting high returns with disproportionately low risk.
Let’s imagine that Bob sees that older, run down areas of his city are being redeveloped. Bob also sees that gas prices are going higher and higher, and he thinks that suburban sprawl will be reversed and bring people back into the central areas that are being redeveloped. If Bob’s speculation is correct, the demand for such areas will be increasing - hopefully rapidly.
So, Bob wants to buy a home in the centrally located area that is currently being redeveloped. Let’s say he has $300,000 in his IRA and these properties cost $250,000. So he identifies and purchases a home in the target area using his IRA. He may hit a home run with this investment, but what are the risks? (more…)
The Cost of Isolation March 19, 2008
Posted by Jeff Nabers in Self Directed IRA/401k.Tags: investment, strategy, self directed, ira, 401k, profit
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Most of my product and service development is centered around the theory that for most average Americans, a self directed IRA/401k actually is too risky. The conventional way of investing involves pushing a button or placing a phone call to effect a securities transaction. This new way of investing holds potential power, but for most people simply opening an account and then being thrown out to the wolves doesn’t work very well. This type of balanced viewpoint is not usually spotlighted by companies who make their money in convincing people to open self directed accounts. There is a lot of focus on opening accounts and setting up LLCs, but very little focus on how to actually find, evaluate, and buy profitable alternative assets.
So how well are accountholders doing in isolation? It’s very hard to tell because (more…)
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