Posts By Derek Carpenter
On the Stellar Inflation Debate
The Stellar protocol’s built in inflation mechanism is coming under increasing fire from the community due to what is perceived by some as a lack of transparency or valid justification for the model from the Stellar Development Foundation.
Stellar inflation explained
Stellar’s inflation model currently creates an additional 1% stellar annually. Each Stellar account holder is granted a number of votes proportionate to how many stellars they hold (1 stellar = 1 vote). The votes are cast by setting an ‘inflation destination’ address within the Stellar client. The top 50 Stellar accounts in receipt of the most votes have the inflation pot distributed amongst them.
Problems with the inflation model
The operator of Stellartalk.org who goes by the moniker Hurukan has posted a compilation of issues with the inflation model that have previously been discussed within the community. The post has sparked further debate on the issue, but the Stellar Development Foundation has as yet declined to comment.
The major bone of contention outlined in the forum post is the fact that although the Stellar Development Foundation has made statements to the effect that they hope users ‘will direct the inflation at causes they support or it will enable novel business models’, it is seemingly impossible to follow up on these due to the current inflation model.
Cui Bono
Firstly, as the post rightly points out, most Stellar users keep their stellar in a gateway wallet, which means that their votes are transferred to the jurisdiction of gateways that will set their own inflation destination (probably pointing it at themselves). This will invariably lead to a situation in which only gateways will be able to reach the top 50 votes and average users will have no real say in distribution.
Secondly, the Stellar Development Foundation themselves hold 98 billion stellar. Therefore, they can always win the vote and award themselves a significant proportion of the inflation pot.
Gateways and The Stellar Development Foundation are simply not ‘causes’, nor are they ‘novel business models’ (at least not within the cryptocurrency field). Therefore, there seems to be something of a disconnect between whom the Stellar Development Foundation claims it wishes to see benefit from the inflation system and who will actually benefit in practice.
Is network neutrality important to the foundation?
When inflation was first mooted, it was assumed by many that in order to maintain network neutrality the custodians would not participate. However, it appears that this will not be the case.
What some find even more galling is the client setting of inflation destinations by default to ‘Stellar Development Foundation’ in new accounts. This means that many new users who are uncertain about destination setting will be transferring their vote to the already vote and stellar-rich ‘non-profit’ foundation.
Delaying demurrage?
All of this raises questions like: what is the real reason for inflation? Is it to line the pockets of Stellar Foundation and their friends, is it to support worthy causes, or is it, as many have speculated, to create a form of de facto demurrage to encourage use of the currency?
If it is the latter, then it would seemingly make more sense not to implement inflation until for example 12 months after all of the stellar have been distributed.
One might think that the last thing the Stellar Network needs is more stellar in reserve when there are still 98 billion left to give away. It seems strange that the foundation is creating more when they already have such a gigantic minting cap. Actual distribution will surely hit holders hard enough.
It also seems generally unfair to levy demurrage on stellar holders when there is no current use for stellar. When the currency is used and accepted by many merchants then there might be an argument for demurrage. But to punish holders for not spending something that cannot be spent seems counterproductive and perhaps even antagonistic.
Demurrage works when currencies are currencies. But since stellar has little or no practical use as yet, then it is not a currency but an asset, and assets have one purpose, to be stored. The inflation model as it currently stands seems to degrade even asset status and make stellar something of a liability.
And finally, if the goal is truly to help worthy causes, then we must ask again, why the need to implement inflation until after distribution? Surely it would be more efficacious for Stellar Foundation to give a proportion of the 99 billion Stellar that already exist to worthy causes with voting taking a direct democratic form.
Contradictory messages
Whichever side of the debate you find yourself on there seems to exist contradictory messages within the Stellar vision. This is expressed via calling something a non-profit and creating an unfair system through which you can profit. Or, creating on a demurrage effect that contradicts a commonly held notion recently expressed by Greg Brockman of Stripe that stellar itself will have little use at all other than as a liquidity provider and everyone will be using multicurrency IOUs.
On the whole, confusion and uncertainty are detrimental to financial networks in general, especially those built primarily upon trust.
Stellar Development Foundation should clarify its position
If Stellar Development Foundation are simply following this inflation path in order to fund themselves and major gateways, then it would be better for them to simply admit the fact and say ‘we are allocating ourselves royalties because we are building the network and we are awesome’. In that way they would come across as honest and at least not insult the intelligence of the Stellar community.
But what cannot be denied is that for an organization that claims to be in favour of egalitarianism, their inflation system is certainly not egalitarian. Even if the Stellar Development Foundation were to relinquish their votes then their system would still mean that the rich get richer and the poor get poorer. This is a criticism that has caused many to move away from NXT and we must wonder why the Stellar Development Foundation would be so keen to include the downside of Proof-of-Stake in a new project when they have had the opportunity to do things differently.
Hopefully, The Stellar Development Foundation will move to address these valid community concerns and clarify their position further so that they do not come under even more criticism in future.
Mistakes To Avoid When You Buy Gold Coins
When people decide to start investing in gold, regardless of the reason, many immediately think to buy gold coins. For some, a late-night sales pitch for some newly minted coin is what got them thinking about gold in the first place. I’m sure you’ve all seen them. The historic imprint celebrating some event or another. The limited time offer. The restricted run. The certificate and fancy storage container. It all sounds very nice except for one small detail they fail to mention: the inflated premium over the spot price of gold.
This introduction to the metal usually leads to a string of ill-fated decisions, ultimately resulting in the investor losing money or at least massively curtailing returns. If that doesn’t sound like wise gold investing to you then we’re in agreement! Our goal is to help you maximize your returns when investing in gold, so let us explain exactly what is wrong with buying gold coins as an investment, which ones are safe to buy, and the superior alternatives.
The Differences Between Gold Coins, Gold Rounds, and Gold Medallions
The first thing you should understand before you buy gold coins is that not all of them are created equally. In fact not all gold “coins” are coins at all! In common speech, people refer to anything basically coin-shaped as a coin, but there are actually three distinct products in this category: gold coins, gold rounds, and gold medallions.
The defining characteristic of a gold coin is that it is minted as legal tender for a country. In the case of historic coins, which may no longer be accepted as legal tender anywhere in the world, it is enough that they were legal tender at the time of their creation. A true gold coin will have a face value mark, denominated in the currency of the country of origin. Coins, especially older ones, can also have a significant numismatic value due to their rarity but investing in numismatic value is not the same as investing in gold itself and is best left to coin experts.
Gold rounds are physically no different than gold coins, but weren’t minted as legal tender. This means that rounds will not feature a face value, instead being marked with a weight and purity such as “.999 fine gold, 1/4 troy ounce”). They are also often marked with the originating mint, and sometimes have a decorative design on one side or the other. For all intents and purposes, a gold round is simply a gold bar with a different shape.
Gold medallions are, like rounds, not minted as legal tender. Medallions are essentially a subset of gold rounds that are marketed and distributed as collectibles. These are the the items you see for sale on late night commercials commemorating individuals, events, or historic eras. To add further to the confusion surrounding investing in gold coins, medallions are often minted as replicas of official coins complete with identical markings and face value marks. They are required to be different sizes than the original coin, but this is not always apparent when purchasing online. Unscrupulous sellers will do what they can to conceal the replica status of the medallion while still meeting minimum requirements for legality.
Which Type You Should Use When You Buy Gold Coins
You may not get this impression from some of our summary articles, but it’s true that we aren’t against ALL gold “coins”. True coins do have some advantages worth considering, but unfortunately the common usage of the word coin including rounds and medallions causes confusion for potential investors and leads them to make poor investment choices. If the space can’t be devoted to explaining the particulars of gold coin investment we simply advise individuals to stay away from them because it’s safer overall. We feel it is better to guide someone towards a reliable gold bar than to have them mistakenly buy gold coins at a huge premium that turn out to be commemorative Winston Churchill medallion because they didn’t understand what you meant by “coin”.
The chief benefit of coins is their immediate recognizability. This gives them a tradeability and liquidity advantage over some rounds and bars. In the worst cases, a gold medallion may not even have a weight and fineness mark and must be appraised or melted to be sold! Obviously the transaction costs of this are a significant burden on any return you might get from the sale. We always recommend purchasing rounds and bars from well-known, reputable dealers so we’re not concerned with this particular benefit of coins, but it is there and important to note. The best coins for this recognizablity boost are the American Gold Buffalo, American Gold Eagle, South African Krugerrand, and Canadian Maple Leaf.
The downside of coins is that they are not typically sold directly to investors. Unlike rounds, which can be purchased directly from a private mint, you can’t simply buy gold coins from the U.S. Mint. Coins go through numerous middle men before reaching the investor. Each of these stops increases the premium a little bit, resulting in a significant premium to overcome before you are making returns.
Of the options we’ve discussed here, our recommendation for those investing in gold is to buy gold rounds. As anyone familiar with active stock trading can tell you, transaction costs can devastate your returns and the transaction costs for coins are simply higher than that of rounds. If you purchase properly marked rounds from a well known and trusted source, there is only a small difference in liquidity that we don’t believe is worth the premiums you pay for buying true coins. If maximum liquidity for an emergency still concerns you, you may want to hold a small number of bullion gold coins and keep the rest of your small-weight investment in rounds or bars from private mints.
To summarize, here is a short list of tips to keep in mind when you buy gold coins:
The Do’s and Don’ts of Investing in Gold Coins, Rounds, and Medallions
DON’T buy gold medallions. Period. DON’T pay a premium when you buy gold coins unless you’re more interested in liquidity than maximum returns. If you are buying gold coins, DO only buy the most common bullion coins (such as the American Gold Buffalo) to get the largest liquidity benefit. DO buy gold rounds that are properly marked and from a well known, trusted mint.
Agriculture Contracts On A Digital Currency Platform?
Digital currencies are known for their cutting edge technologies and innovations to the current financial system. But, what happens when you mix a digital currency with an ancient industry like agriculture? You get an interesting and possibly a very profitable vehicle. A few months ago Nofiatcoin (XNF) launched its agriculture contracts on XNFTrading.com. The contracts offer a 20% return on investment, a nice percentage compared to what most financial vehicles offer now days.
Why Agriculture? As it turns out, agriculture investments offer many benefits unfamiliar to the typical investor:
Value is driven by demand not by financial markets. There is no need to worry about market volatility.
Demand continues to increase, as world population continues to grow.
Production of annual/seasonal income.
Hedged against inflation like most digital currencies.
Reduced risk on investment as many governments have established laws to “secure” revenue.
Let’s go over the current and future agriculture offerings on XNFTrading.com
Rice
Rice is a carbohydrate-heavy crop originating in Asia that has been cultivated since ancient times. It is one of the world’s top three staple foods. A significant proportion of the world’s population relies upon daily supplies of rice to avoid starvation.
Rice is undoubtedly a profitable crop to farm and grows best in tropical to sub-tropical climes. Successful rice growing nations tend to form a band running above the equator, straddling the Caribbean and Iberia then across to India and China.
The two biggest rice producers are China and India, but they are also its biggest consumers and therefore weak exporters. Perhaps surprisingly, Vietnam and Thailand are relatively low producers of rice but they are among its biggest exporters. The United States is also a large exporter of rice, but consumption and production are relatively low. The fact that some low producers of rice are among the biggest exporters suggests that demand in Asia is not being significantly met.
China and India together account for almost half of the world’s population and their growing influence and development suggests that their demand for rice will continue to grow. This is reflected by the recent reduction of rice exports from China and booming prices. The commodity has already doubled in value over the last 4 years due to rising fertilizer costs and low Asian yields caused by climatological issues. Asia needs its dwindling rice stocks for its own people and we can likely expect prices across the rest of the world to increase further.
Additionally, global rice stocks are at a current low due to a bull run on other staple foods such as wheat. This has led to some rice farmers opting to plant wheat instead and may create a massive price spike if stocks continue to decline.
Tomatoes
Tomatoes are the second most important vegetable crop next to potato. Tomatoes prices have followed in the footsteps of many other food stock commodities such as wheat and corn for many of the same reasons: increasing prices for energy, farming chemicals, water, and labor have all contributed.
Presently, the world production of tomato is about 100 million tons fresh fruit produced on 3.7 million hectares. Tomato production has been reported for 144 countries (FAOSTAT Database, 2004), the major country being China in both hectares of harvested production (1,255,100 hectares) and weight of fruit produced (30,102,040 Mt). The two leading countries in fruit yield per hectare are the Netherlands (4,961,539 Hg/ha) and Belgium (4,166,667 (Hg/ha) (FAOSTAT Datebase, 2004). The top five leading fruit-producing countries are the United States, China, Turkey, Italy, and India.
Peppers
Peppers have remained one of the most promising non-traditional export crops as it can be used in many different ways, however it is mainly used fresh in cooking as a spice and in the manufacture of sauces and seasoning.
In the last years, demand for peppers and pepper-based products has increased significantly around the world. The non-pungent form, Bell pepper, is widely used as a green vegetable while Hot or Chili pepper is one of the best-selling condiments.
International Pepper Community (IPC) figures showed that global pepper consumption grew at an average of 4.8% per annum during the 2001-2013 period compared with a mere 0.3% increase in average yearly production.
Following a five-year bull run as the world’s annual consumption of the spice continues to outpace production, domestic and global average monthly pepper prices have soared to their fresh historical highs.
Passionfruit
Passionfruit is a non-essential food and therefore considered a luxury commodity mainly consumed for its taste. As such, the market for passionfruit is more volatile than the rice market but the potential for profits can be greater.
International prices fluctuate wildly during the course of a year depending upon yield, quality and freshness of the harvest. The market can easily move between $17 and $90 per crate throughout the growing season. In September and November when little fruit is harvested the price tends to be at its highest. It dips during July and August when harvesting is at its peak and a great deal of fruit becomes available.
The biggest producers of passionfruit are the South American nations with Colombia and Brazil topping the list. However, neither of these countries can keep up with internal demand and export very little. The US market for fresh passionfruit is weak outside of the south-western states. However, in Western Europe, Asia and Australia the fruit is more popular and supermarkets desire regular supplies of fresh fruit. Because there is a global shortage of passionfruit, this demand leads to bidding wars between major supermarket representatives and an incredibly competitive market.
Passionfruit is generally considered a profitable crop to farm. The expectation is that it will become more so due to a rising middle-class in the BRIC countries increasing demand on stocks that are already low. The Kenyan government has recently announced plans to streamline its passionfruit production to capitalize on potential future interest in the crop.
Plantain
Despite the popular belief that the fruit is South American, both the plantain and related banana originate in South-East Asia. However, they are grown heavily in the southern Americas because they thrive in tropical humidity.
The plantain is the world’s tenth most important staple food. It is a good source of carbohydrate, fibre and vitamins. The plantain fruits year-round which has led to daily consumption in South America and Africa where demands are extremely high.
Following initial investment, plantations are extremely rewarding in terms of yield. Like banana trees, plantain ‘trees’ aren’t actually trees at all. They are giant herbs, and like herbs are extremely prolific germinators. The mother plant will not only flower and give out plantains all year but will also produce plantain ‘pups’ which are young plants that soon turn into producing mothers.
The plantain market is strong and represents another situation where demand outstrips supply. In Africa the price of a bunch of plantains has tripled since 2011 and governments there have expressed concern that if global supplies are not increased to meet demand there may be starvation and rioting.
Goats
The goat is a livestock commodity with several important uses for humanity. They have been farmed in the middle-east since the dawn of civilization and the tradition has spread worldwide. Along with sheep, goats have cultural importance to many peoples and represent the quintessential animal husbandry tradition. The family goat remains a good source of income for many in developing countries to this day.
They are hardy, intelligent and aggressive animals that prefer mountainous regions but thrive almost anywhere, either alone or in flocks. They can eat practically anything and as such are often used to clear coarse scrub that other animals cannot eat; this increases their rural value as biological ‘lawnmowers’ who clear land in preparation for crops. This hardiness makes them easy to keep and a rewarding livestock investment. The goat lives for twenty years on average and reproduces at the rate of two kids per year. An initial investment in four goats (for genetic reasons) should create a sizable flock that grows exponentially during their lifespan.
Goats are valuable either living or dead; they are prized for their meat, milk, manure and their hides. Each of these is usually traded separately on the stock market and there is also a trade in live animals. Demand for meat is strongest in India where there is currently a population boom and we can expect prices to increase there. The market for goat’s cheese and milk is currently seeing a Western resurgence due to desires to move away from the more fattening and allergy-forming cow’s milk. Markets are incredibly vibrant, and with ten thousand years of trading history it is unlikely that any goat-related product will go out of fashion.
As seen, all of the investments on offer are viable for different reasons. The opportunity to take part in these global markets is undoubtedly an interesting and exciting one. If not for innovation, then the XNF team should get the prize for creativity. In a market that is becoming saturated with coins that don’t offer much more than the existing ones, we commend those teams, established and new ones, that strive to stand out and offer additional value to their customers.
How to Create Wealth Investing in Real Estate
Investing in real estate can be a lucrative pursuit. Many of the world’s wealthiest individuals got their start by investing in real estate. Of course, real estate investing is not easy. You need to know what you are doing. Keep reading our guide to learn how you can create wealth by investing in real estate.
What is Real Estate Investing?
Simply put, real estate investing is the process of investing in real estate properties such as houses, offices, or other buildings. Investors will buy a property and then rent it out or hope that the price of the property increases in value.
The basic principle of real estate investing is to make money by purchasing properties at below-market prices, managing them over time until their worth appreciates, and selling them for profit. Another approach is to invest in real estate through flipping houses-buying, renovating, and reselling the property for a profit.
The following are some of the advantages to investing in real estate:
– You can make money from renting out your properties or waiting until they appreciate in value.
– It is less risky than other investments because you have control over how much risk there is.
– You can take advantage of historic preservation tax breaks.
– Your income is stable because it does not fluctuate like stock prices do, for example.
How Do Real Estate Investors Make Money?
Real estate investors can make money in two ways.
- Renting property and collecting a profit
- Flipping properties for a profit
In the first case, you can rent out a property and collect profit by collecting rents on time. You will pay a mortgage, charge a rental fee, and pocket the difference.
In the second case, you can purchase a property below market value and then renovate it. You will renovate the house to make it nicer and sell it for more than what you paid. For example, if you buy a home for $200,000, invest $20,000 in renovations, and sell it for $250,000, you made a $30,000 profit.
How Much Money Do You Need to Start Investing in Real Estate?
Real estate investing may seem expensive, but it doesn’t have to be. You can start investing in real estate with as little as $500. If you want to be more sophisticated, then the sky is the limit.
The amount of money that you need depends on how much risk you are willing to take and how many properties you plan to invest in at once. Generally speaking, if your investment strategy involves investing in a lot of properties-either for flipping or renting out-then it will take more money.-
What Are Some Tips for Successful Real Estate Investing?
If you want to become a successful real estate investor, you need to have a good strategy. Here are some tips for becoming a successful real estate investor.
– Have a goal. Decide how much money you want to make and how long it will take before deciding which strategy is best for you.
– Know your budget. You need to be able to afford the properties that you choose or risk overcommitting yourself financially.
– Get educated with real estate investing books, podcasts, courses, and seminars.
– Get a mentor who has experience in real estate investing and can give you advice based on how much money that person is making per year.
– Start small to test the waters before risking too much of your savings or leveraging yourself with loans for bigger investments.
– Build credit so that you have more options when it comes to how you want to fund your investments.
– Choose the property type that is appropriate for you such as apartment buildings, single family homes, or office spaces.
– Invest in properties near where you live so that if something goes wrong with one of your investments, you can maintain control over how much risk there is and how close it is to where you live.
– Be realistic about how much time will be required to manage your properties and how often you are willing to spend on managing them.
– Consider the amount of risk that you want in your investment strategy before deciding how many properties or how big an investment it is worth making for a single property.
How Long Does it Take to Create Wealth With Real Estate Investing?
Creating wealth from real estate doesn’t happen overnight. You need to spend some time to build your portfolio. You can start to make money right away, but life-changing wealth takes time to build. How much money should you expect to make from real estate investing? Here are some considerations.
– The more properties that you invest in, the less time it will take to build wealth.
– The larger the down payment that you make on a property below market value, the sooner your money starts working for you.
– A good strategy is to start small and use profits from those investments to purchase bigger ones until your portfolio size becomes how much you want it to be.
– The more risks that you take, the less time it will take to build wealth if things go well.
For example, investing in cash flow properties can create a lot of wealth quickly because when tenants pay their rent on time every month and mortgage payments are made regularly per year, then your money will work for you.
Creative Ways to Finance Investment Property
Most investment properties don’t qualify for the traditional loan programs that are so attractive to home buyers. And besides that, lending standards have become much more difficult now that banks have been forced to deal with lots of foreclosures and declining property values. These two factors make it more and more difficult to get financing for your investment property. However, if you are creative and willing to do some asking around, there are still plenty of creative ways to get the financing you need. Here are our some of the best.
Use a Mortgage Broker to Find Traditional Lenders But Creative Programs
While it’s true that many traditional banks and lenders may turn you away, there are plenty of banks throughout the country that are still looking to lend money to certain types of investors. So despite your local bank not wanting to invest in property because they are already overloaded, there may be a bank or lender on the other side of the country that is looking for exposure to a different real estate market. Sometimes these lenders are national and sometimes they are regional. The hardest part about getting a loan from these lenders is finding them. That’s why it often pays to find a mortgage broker to help you search for a creative loan.
Mortgage brokers have access to dozens, hundreds or even thousands of lenders and can search their database to help you find the best loan available. They are especially useful when you are looking for non-traditional loans. That’s because non-traditional loans are not as competitive and therefore the rates and terms can vary dramatically. By having a broker shop around for the most appropriate type of loan and for the lowest rates, you can often find the most ideal loan for your real estate investment. And if you’re worried about having to pay the broker, don’t be. Mortgage brokers get paid an origination fee by the lender. The same fee that would be getting paid to any other banker or lender that would give you a loan.
A final reason that mortgage brokers are a great and creative way to find a loan is because of all the knowledge they carry. At a bank, the banker knows only about the loans that his or her bank offers. However, a broker has to be savvy on all types of loans. You may have to ask around for a mortgage broker that specializes in investment property, but once you find a good broker, they can help you find the right loan by asking you the right questions, and matching your needs with the loans available. For example, mortgage brokers can find loans that require no income verification, loans that are based on the cash flow potential of the investment, and loans that are specialized for your type of investment.
Unfortunately, not everyone will be able to find a loan from a traditional lender. In that case, it pays to get even more creative. Here are your next best opportunities.
Use Seller Financing To Buy an Investment Property
If you can’t get the loan that you want from a traditional lender, consider asking the seller of the property to help you finance it. While it’s true they are looking to cash out of their investment, they are often open to the idea of a partial payment in cash and then an annuity of loan payments until the property is refinanced. If you’d like to pursue this course of action, you’ll have to become your own salesperson, as most sellers will have to be sold on the idea. To get them to bite you can offer them a higher overall payment for their property than others are offering, or even higher than they were asking. You could also offer them a favorable interest rate that matches what they would earn on the money they loan you if they were to invest it themselves.
Seller financing used to be a much easier sell, because years ago many mortgages could be rolled over into a new owner’s name, however, that is not the case anymore. If you want the seller to help, be creative with your approach. Put together several financing options that include different payment levels, interest rates, and loan lengths so that the seller can choose an option that is favorable to him or her. Once you agree on terms, you’ll have to draft a loan agreement and sign it with a notary. To get a loan agreement you can either find a copy of a generic agreement and modify it, or you can have an attorney or title company help you draft one.
Hopefully, you can get your seller to help you buy the income property, but if not, there are still other ways.
Withdraw Equity From Your Home to Buy a Property
I’ve know people that have used their credit cards to finance entire apartment buildings. They would pull out 10 to 20 percent of the value of their investment and then finance the rest with an adjustable rate, no income verification loan. This may have been the riskiest investment I’ve ever seen but it proves that if there’s a will there’s a way. In other words, if you’re sure that your investment will pay dividends (and the mortgage) down the road, you can consider withdrawing money from your home equity or other assets to help you finance it. For example, if you already own a few properties and need a 25% down payment for a new investment, you could potentially open up a line of credit or home equity loan on one of the properties or your own home. You could also refinance other properties in order to take cash out and use it for the new property investment.
Withdrawing equity from your home is risky and even riskier in times when home prices have been falling. Before you do this, make sure you have enough income to be able to face any setbacks that may happen over the next several years.
Ask Friends or Family to Invest With You
Another source of funding for you real estate could potentially come from your friends and family. The important thing here is that you do not try to coerce or take advantage of your friends and family. If you are going to borrow money from them, then you need to offer them a fair rate of return. If you want them to invest with you, then you may have to offer them an ownership share of the property you are buying. Once you find someone that is interested in your investment idea, there are lots of both small and large details to work out.
For example, you have to figure out how much money they are going to lend you. You’ll also need to come up with an interest rate. Then, you’ll need to figure out a term for the loan. Is it a loan for five years at which time you will refinance it to more traditional financing? Are you offering them an ownership percentage? If so, you’ll need to make sure that they know that you are the sole and primary manager of the property and that they are only a passive investor. You’ll also have to come up with a plan on how to pay them back. Once you have all the details agreed upon, you’ll need to get an attorney or an experienced real estate or title agent to help you draft an agreement or loan contract. These types of loans are risky because mixing money and family often causes troubles that no one could have anticipated.
Consider a Hard Money Loan to Buy Your Property
If you’ve tried all of the other techniques but have had no luck raising any money, then you could consider a hard money loan. Hard money loans are given based almost entirely on the “hard” asset, or in other words, the value of the property. Typical hard money loans are for up to 70% of the value of the property you are buying. Hard money loans are not given by banks, but by private lenders, and they carry interest rates that are significantly higher than traditional loans. More importantly, hard money loans are for short periods of time, usually only up to five years. That means that if you are considering a hard money loan, you will have to have a plan in place to refinance the property in a few years in order to pay off the hard loan.
These are the most expensive loans and are risky for obvious reasons, but the biggest risk is that you can’t refinance the hard loan into a new loan when the time comes, and may have to give up the property. Hard money loans are best in cases where there is a problem with the property that can be fixed within a short period of time. Sometimes a simple problem such as having a kitchen or bath that doesn’t function will prevent any traditional lenders from giving you a loan, because the house is deemed “unliveable”. Another case would be for a new construction property that came for sale and is not fully completed. Whereas traditional lenders may not lend in these cases, a hard money loan could be used to acquire the property, fix the defects, and then refinance the loan and pay back the hard money.
In conclusion, while we’ve discussed several creative ways to finance an investment property, there are many other creative ways that you could use that include things like sale leasebacks and even personal lending. If you search around enough and keep your options open, there is probably a way to finance any realistic investments that you have in mind.
401K Investing: Is It Viable for Income Property?
There are different ways to engage in retirement account and/or 401K investing.
Before we dive in, I must say that I’m clearly not an accountant, so a detailed discussion around this is beyond the scope of this site. You absolutely, positively must consult with an accountant prior to executing any strategies involving IRA or 401K real esate investing.
With that said, we can at least discuss the concept in a general way to spur your creative juices.
BENEFITS OF 401K REAL ESTATE INVESTING
In general, the main advantages are access to “non-cash” sources of investment capital, and the ability to avoid income and
capital gains taxes
if done properly. For investors experienced at this sort of thing, the tax benefits could result in a savings of up to 25%.
The tax benefits can be substantial because you can avoid capital gains tax when you sell for a profit, and if your account receives monthly rental income from a property purchased with cash from the account, there is no income tax.
OPTION #1: TAKE OUT A LOAN AGAINST YOUR 401K
A loan against your 401K can be used to fund your down payment requirement, effectively giving you a
zero down option.
This is yet another method of minimizing your out-of-pocket acquisition costs, and is clearly preferable to simply making a withdrawal (triggers a 10% penalty, plus taxes owed on the withdrawal amount).
You’ll have to pay interest on the loan, typically 1-2% above the prime rate, and you’ll generally have 5-10 years to pay it back. You start repaying right away, in equal installments that are taken directly out of your paycheck.
I would recommend looking into this option only if you are executing a
fixer upper strategy
because you can do a post-rehab
property refinance
to pay back the loan quickly. But even in this scenario, there are some downsides:
There is an opportunity cost of not earning money on what you take out.
If you lose your job or change employers, many plans require all 401K loans to be paid back within 60 days (if you can’t pay the full balance, you’ll default and will have to pay taxes on the loan balance plus a 10% penalty for early withdrawal).
You can only borrow a maximum of $50K (or less depending on the size of your nest egg).
Your tax benefits may change. For example, you may not be able to count your mortgage interest payments as
rental tax deductions.
Your employer-sponsored plan may not allow this.
Late payments may subject you to substantial penalties
Bottom line: proceed with extreme caution.
OPTION #2: COVERT TO AN IRA & BUY PROPERTY OUTRIGHT
Here, you can rollover your 401K to a “self-directed IRA” or a Roth IRA. The benefit is that you’ll dramatically expand your investment options to pretty much anything you can think of. Another benefit is that you are not limited by the $50K cap inherent in 401K real estate investing loans.
If you have a large enough balance, you could use it to purchase a property outright. In this case, your monthly
rental income
goes right into the IRA. And this monthly income, along with the profit you’ll make when you
sell,
is tax-free as long as you do not take the cash out until you are 59.5 years old.
Here are some things to keep in mind:
You may incur a penalty when doing this type of rollover
You’ll need to find an experienced account custodian if you’re considering a self-directed IRA. This is critical because you could jeopardize your tax-free status if you make errors regarding prohibited transactions, rules of self-dealing, etc.
You can’t sell your primary home to your account or use the account to buy property that you plan to live in at some point in the future.
There can be restrictions on family members’ use of your investments (for example, your child can’t rent an apartment in a building owned by your IRA).
Bottom line: proceed with extreme caution.
OPTION #3: LEVERAGE PROPERTY THROUGH YOUR IRA
In this scenario, you could use your IRA balance to fund the down payment, and then have your IRA assume the remainder of the purchase price in the form of a mortgage to complete the transaction.
As you might imagine, this option has a lot of complexity. First, you’ll need a “non-recourse” loan so that the property is the security interest, not the IRA itself. You may find it difficult to find a lender willing to do this.
Also, there may be some weird tax consequences, like unrelated business income tax or unrelated debt financing income tax. This can run as high as 35% on the income from the financed portion of the property.
Bottom line: proceed with caution when executing 401K investing.
SUMMARY
As you can see, this strategy is not limited to just 401k real estate investing. IRAs are the more favorable option, and there can be tremendous tax benefits if this is done properly. However, you must heavily lean on your accountant to navigate around all the pitfalls.
10 Things You Need to Know Before Buying Property Overseas
You are on a vacation to a European or South American destination, and you love everything about the place. The weather is nice, food is great, people are hospitable and friendly, it is not crowded like New York or London, plus the prices are comparatively low by American standards. You like the place so much, that you’ve considered living here. If not that, at least buy a decent apartment or a condo, so that you can visit whenever you like.
Purchasing a property overseas is exciting, but only after you are clear about one rule – the heart should never rule the head where money is concerned. Also, it is essential that you follow the right procedure, and avoid using any unfair means in securing real estate. Consider doing all the things you would do if you were buying real estate in your homeland. Here are some tips that you can follow.
Know the Market Thoroughly
Be aware of rising and falling trends of the market. Knowledge about the rates can be helpful if you want to buy when prices are down, and sell as soon as the market sees an upward trend. Also, some countries have strict rules that prevent or limit property ownership to foreigners. Hence, it is good to know whether or not you have the legal right to purchase property in that country, to avoid any scams or disappointment. It is important to do your homework before stepping in the market of an alien country.
Beware of Impostors
The global real estate market is filled with impostors who con people, and often get them involved in a financial and legal mess. Even so, this doesn’t mean that everyone you come across is a thug, but being aware of what is right and wrong is a smart move. If you are dealing with a real estate agent who does not carry business cards, and does not have an office, he/she is probably someone you should avoid. Also, there are certain countries that don’t regulate their real estate industry; hence, agents don’t even require a valid license. Be extremely careful here, and proceed only after doing thorough research.
Only Purchase What You See
Real estate agents are idealists. They will make you dream about well-built roads, world-class amenities, and other facilities that are nowhere in plain sight. The catch here is, once you have signed the contract, you are the owner of the area and the illusions surrounding it. I have nothing against agents here, but it sounds risky to invest your hard-earned money for just barren land. Consider all the things that can go wrong here. Hence, only buy what you see.
Always Seek Professional Assistance
Great deals at an affordable price can be achieved if you buy a property directly from the owner. Nevertheless, don’t forget that you are in a foreign land, and taking the help of a reliable professional can be useful to avoid various pitfalls when buying property in a foreign land.
Signing a Contract
Never sign a contract that you don’t understand. Always ask for two versions of the contract – one in English, and the other in the local language. Bring along your legal adviser to confirm that the English version is a true translation, and does not contain any errors, extras, or omissions. Read the contract thoroughly, and ensure that you and the seller both agree to the different terms and conditions decided.
Try to Pay Cash
If you really like the property and know that this is the final deal, try paying the owner cash. It is a tough decision to take, but it is important to understand that financing mechanisms, like mortgages, aren’t as stable in foreign countries as they are in the US. In most European vacation spots, property transfers are mostly done in cash. For those who can’t do without a mortgage, seek the help of your real estate agent and lawyer to know more about such destinations.
Verify the Title
In the US, if you acquire a property you get a warranty title that states you are the legal owner. However, in countries outside the States, this title can create quite a problem. This is highly possible in European countries. You see, World War II had created many boundaries in the world, and it is quite possible that once you purchase the property, a recent descendant of the family can suddenly appear to claim his/her property. The situation sounds dramatic, but it can surely happen. This crisis can be avoided by taking the help of a notary. A notary can help verify legal documents, and also ensure that there are no gaps in the property’s history, and you are the rightful owner.
Knowing the Native Language
Relocating to a country without knowing its native language can get quite difficult. The best thing to do is to join a language course, and get things in motion soon. However, if you are not up for this challenge, a better idea would be choosing a country where English is spoken in large numbers.
Valuating the Property
Property valuation is an important step, especially in a foreign land. You need to know all the pros and cons of the property before signing the papers. Hence, ensure that an independent valuation of the property is carried out in your presence.
A Local Bank Account is Necessary
You will have to open a bank account in the country where you have chosen to live, and apply for a Certificate of Importation, so that bringing in money from your home country won’t be a problem. Also inquire about online money transfer facilities, so that you can pay the bills and taxes associated with the house from time to time.
Try to bargain if you are good at it; chances are you might get a great deal at a low price. Also, don’t shy away from seeking professional services that can ensure a smooth transaction overseas.
7 Ways to Buy Commercial Property
Commercial property ventures are not included in all the new homeowner protection laws and regulations about financing that are in the residential market. The financial area of real estate seems to be in chaos…HOWEVER…Commercial Real Estate is a hidden niche that’s ripe for awesome deals.
Here’s How to Buy Right:
Most of the massive changes do not include commercial loans. The Uniform Commercial Code (UCC) controls commercial property loans and other transactions.
The tight money market does affect the commercial investor in the same way. Sometime there are very good deals that come on the market because of the tight money. If you do not have other ways to buy the good deals then you are in the same situation as everyone else.
In a down economy and a tight money market it is up to the investor to find ways to capitalize on what is available. In the tight money market the alternate lenders and investors come out of the woodwork and do well.
7 Ways to Finance Your Commercial Real Estate Venture
Management Syndication: You could offer a private money lender a guaranteed net from the rental property with management in place for 3-5 years, with an option to buy the property.
Like Kind Exchange: Section 1031 of the Internal Revenue Code deals with like kind exchanges, either personal or real property, excluding personal use property and inventory held for sale in the normal course of business. With this strategy, you will need to have another commercial property to sell (and not pay taxes on at that time) then purchase another property. This is a very good strategy when you are trying to upgrade to a more suitable or more profitable property.
Trading: You may have some asset or expertise that would be valuable to the seller of a property. The seller may be willing to exchange the down payment or make better terms with you for some exchange. There is almost no limit to the different ways you can trade (including using regular stocks in your real estate trade). Example; my friend wanted a property on the beach but could not afford anything but he kept looking for something that might work. He found an owner who had a large family in Japan. The owner wanted to keep the property to pass down to his family. The owner was willing to give my friend a 30 year lease with the first right to buy the property. Although my friend did not own the property, he has total control of the property for the next 30 years. He found what he wanted, (to work on the beach) and the owner got a permanent manager partner arrangement. Do a goolge search for “real estate exchange’ and you’ll find various online places you can swap property or equity.
Use your IRA money to buy commercial property: You could have a sizable amount of money in your IRA account. You may not have enough money for your new venture and your IRA is not getting much income/interest. This may be a good option for you but you should not do anything without consulting your real estate attorney. The government puts a lot of restrictions on all transactions that involve retirement accounts.
Syndicate the transaction: One way to syndicate the transaction is to find a really good deal and get the purchase contract signed. Then you find other cash investors to go into the deal with you for a % of ownership in the property or a % of the profits without ownership while you run the business. This is different than all investors being partners. (see training video on Syndication on the videos page Syndication Video) Many commercial property deals are purchased using syndication, it’s definitely a way to share risk, raise capital and get others involved.
One payment a year financing: My father often did this type of financing. He bought big tracks of land for framing or development. With one payment a year financing he was able to harvest a crop or build houses enough to pay the once a year payment. He accumulated tracks of land and other properties all over the county using this strategy.
Option commercial property with a management agreement: Not to be confused with lease-option. With this strategy you would take control and manage the property (like an office building). At some point you may have increased the occupancy and be able to finance the property. There are several advantages to this strategy. The first is you will find out what it takes to improve such a property. The second is you do not have to invest all your money up front. (See Master Lease Video)
Find Private Money Partner: Similar to Syndication, except you’re typically only using a single person or entity to become a ‘silent partner’ in the deal in exchange for a guaranteed return on their money at 8-12%. (could be any %, this is just typical). (How to Find Private Money for Commercial Properties)
The bottom line is this. Right now is a terrific time to get into Commercial Real Estate Investing. If you’ve never done a commercial deal, you need to get boned up on some specifics. Check out the free video series and a free email series on how to profit in commercial real estate.
Profitable Investing & Market Timing – A Winning Combination!
Profitable Investing – Owning Superior Stocks at the Right Time.
Profitable-Investing.com contains a variety of investing strategies and proven market timing techniques to produce consistently above average returns.
The basic stock investing strategy is to:
Only buy stocks when the market timing indicator shows that demand for stocks is strong
Identify the strongest sector
Buy superior stocks in the strongest sector and hold for as long as possible
Manage position and portfolio risk to capture the maximum profit
Go back to number 1…….
Read details of each investing strategy below…
1) Profitable Investing works best when market timing indicates that the market has a high probability of going up
Market Timing Beats S&P500 by 37%
So how do you know when it’s best to buy vs just sit on your hands?
Take a look at this market timing chart.
Do you think you would have better results just not doing anything in the circled areas?
Just that simple market timing strategy alone prevented buying during the market meltdown in 2007/2008.
Market Timing doesn’t mean jumping in and out of the market – I hold good stocks as long as I can – and sell them when the time is right.
And I’m not going to let my portfolio sink 40 to 50 percent without taking action.
I used to create this chart by hand, now I just take a look at the market guide at the top of every page on this site.
The Market Timing Indicator is updated after every market day. It now shows me at a glance what the demand is for stocks.
It’s amazingly useful!
Come back and check it daily.
2) If the stock market is going up what should I buy?
OK, so now you’ve been monitoring the Market Timing Indicator (top of each page) daily and at least the weekly time frame is showing high demand for stocks.
What do you do now?
Well before any stocks are purchased it would be great to know which sector of the stock market is the strongest. Think of a sector as a stock market within a market of stocks.
What if financial stocks are going up and health related stocks are going down. Clearly the most profitable investing would be in stocks belonging to the financial sector.
But how do you know which sector is the strongest?
I have the answer for you!
Profitable Investing Stock Market & Sector Strength Summary Table
This is an image of the daily stock market and sector strength table.
It shows at a glance exactly what you need to know about sector strength.
The top two rows shows the overall stock market strength.
The other 10 rows shows the strength of each individual sector.
Click the image to view today’s table.
The more green boxes you see the stronger the sector.
The more red boxes you see the weaker the sector.
How easy can it get?
3) Now we are getting somewhere, the stock market is strong, you’ve selected a strong sector, now what?
Now all you have to do is select a strong stock.
Once again I have a solution for you.
Every week I go through the entire stock market and find the 100 most consistently profitable and fastest growing companies and stocks to buy.
Many of these companies do not make the nightly news. They are not typically “headline” stocks.
But they are fantastic for a buying for a profitable investing strategy. They make money now, and they are likely to make more money in the future.
I publish this list on the stock watchlist blog at the end of each week.
You can search and sort watchlists by stock and sector.
See if the stocks you own are in the current watchlist!
4) Everything has has lined up so far…
The stock market is strong, you have selected a strong sector, you’ve selected a strong stock to buy…
Profitable Investing – How Many Shares To Buy Calculator
Now the last decision is “how many stocks should I buy”?
That used to be a really tough question for me. I’d talk to experts and financial planners and the answers were all over the place.
They would say things like… As many as you can afford… It depends on what the target price is… Invest 10% of your portfolio… etc
None of those answers are very useful.
Here is a strategy that manages risk but still buys enough shares to be profitable when the stock price moves up:
Figure out what price you would sell if the stock price moves against you
Calculate the risk per share by subtract the stop price from the buy price
Use the risk per share to calculate the number of shares that put no more than 1 to 2% of your total portfolio at risk.
This sounds complicated but it’s really very simple
I even provide a simple position sizing calculator for your use so you can size your risk managed position in a second or two.
Click the image above to use the calculator.
Congratulations! You’re well on your way to above average investing results.
There are many more free resources and information here that you will find useful.
Profitable Investing Blog Update Schedule
Click the image or this link to view the website update schedule.
By far this method of investing in stocks is the most profitable that I have discovered.
I’m so confident of it’s usefulness that I publish my buy and sell activities at the end of every week!
Visit the current portfolio.
When I buy a stock I’ll tell you and I’ll explain why.
When I sell a stock I’ll tell you and I’ll explain why.
I’ll also tell you if I made or lost money on every stock sale.
Every week I post the complete portfolio holdings, how long each position has been held, current gains, current losses, and current sell price levels.
All so you can follow along and become a better than average investor!
No Money Down Properties
Lenders have to lend money because this will give them the profit that they like. If you have a good credit score, then you will be given a big chance of having the most of the property since lenders can benefit from the interest that can profit 4% or more of the invested property. But, many lenders would still require you to pay at least 30% down payment on the invested property or money. This is usually the case because the down payment usually covers the costs of foreclosure or subsequent resale of the property concern. That is why there are a lot of people that would like to have a property now even if they are not ready financially and emotionally. These people are usually the people who settle for a no money down property.
People who would like to have a property that would live in. They are newlywed couples or families that move from one country or place to another. They do not have money for a down payment and thus they thought of purchasing the no money down property and end up wasting their money. People who like to have good income without investing a large sum of money would likely end up purchasing the no money down property. But, remember that having a large return of money without even investing in it is an illusion. That does not happen in the real world. These people are just stressed out that they need to have an answer to their problem fast and end up doubling their problems. So, it is important to know what No Money Down property is before engaging in it. Buyers of this kind of property should have their eyes open and know what this is really about.
There are a lot of commercials about buying houses without down payments or what they called “No Money Down. With these, they offer a lot of great testimonials testifying how they got their house and they became rich buying these kinds of rental properties with absolutely no money required from their pocket. But the question is can this really be done? Can you really buy a house with no money down? Can you own a rental house and earn in as little as one month’s time? The answer is YES. The question however you should be asking is not CAN I have this kind of property, but SHOULD I?
You will notice that this kind of questions is not really asked in the infomercials or the person selling you the No Money Down property. And in the testimonials that you read, you do not really see an answer to this kind of question because the answer is kept hidden. If anyone have a chance to ask this kind of question then his market strategy and advertising would collapse and he would be forced to lie in his answers.
The commercials that you saw only give the good side of these kinds of properties. They tell you that you can easily get rich and that you can profit up to $10,000 the very first day you purchase this property. They have limited time in TV ads that they would only give you the bright side and lure you in buying this kind of property. However, that information is normally a paper profit and it can mean that you bought a property that they think is worth $10,000 but with a real value of about $4000. We would then look into the advantages and disadvantages of these kinds of property.
The advantages are little like you do not need to give your own money from your pocket in order to have the property or you can earn money because of your rented property. But, these advantages would not necessarily mean that they would come to you fast. Sometimes, you need to work this out.
The disadvantages however are plenty. There are properties that need to be repaired and the repair itself would cost a lot of money. Sometimes, what you bought would turned out to have a serious problem in asbestos, lead, mold, and other that needs a lot of money before you can rent it. Very few of the people who buy property with no money down became successful over the long-term. In the long run, you will still pay a lot of money in repairing your house or improving it.
People envision that if they can have one property with no money down then why not have ten or fifty? For many reason, they failed to consider that the maintenance of these houses are costly. Also, the possibility of tenants paying late or not paying at all is also a big problem. The most hassle part is forcing to evict them in your property.
There are a number of reasons and ways in which no money down property would be purchased. Just remember its advantages and disadvantages and ask yourself if you really need it. Some of this work sometimes, others work other times, and some doesn’t really work at all. If you want to have the no money down property, you should be open on many circumstances that you would be facing and utilize more than one technique in controlling you property.
