Despite some positive stirrings in real estate in various parts of the country, it’s wise to take cautious steps when strolling back into the investment property market that was so overheated just a couple of years ago.
A good first step is consulting with a tax or financial adviser, such as a CERTIFIED FINANCIAL PLANNER™ professional, who can help you assess your own financial situation before you begin. Getting your own financial house in order first is critical.
Some thoughts:
Remember that real estate investment is part of an overall financial plan. Investing in real estate requires specific tax, spending, budgeting and people management advice. Based on your other assets and your overall financial plan, investment property might be a worthy goal, but only if it fits your investment strategy and if you’re willing to put the time and effort into creating a successful business.
Don’t spend until you study: If you don’t have an intimate knowledge of neighborhoods, rental rates, commercial traffic or any of a dozen more factors that make real estate investments a particular success in one community and not in others, don’t even start. The most successful people in real estate investment have taken the time to learn about the properties they’re buying, sensible ways to borrow and economical ways to manage the buildings they have. Make sure you assemble a good advisory team around you starting with your financial planner, your tax adviser and an attorney knowledgeable about real estate transactions. They’ll teach you and keep you from making serious mistakes.
A slower market doesn’t mean a bargain market. Even though the gains of the past 15 years aren’t what they used to be, keep in mind many sellers aren’t terribly desperate to sell and they’re not dropping their prices all that much. Make sure you take the time to study a particular market not only for gains in price, but for stability in rent and overall quality of the property and neighborhood you’re examining. You might hear about a downtrodden neighborhood ready to “turn,” but that rotation might take years – start slow and pick properties with the best chance of appreciation.
Home ownership is not real estate investment. If you’re thinking about leapfrogging from one residence to a new one in hopes of huge gains when the market returns, give yourself a reality check. An investment is something you can sell when the moment is right without any hesitation. Is that something you can really do with a home you’ve grown comfortable in? When the market goes up or down, we don’t necessarily think of dumping our principal residence. There are emotional ties as well as physical ties to a home – whereas real estate bought as an investment must produce income during ownership or a profit at the time of sale without exception.
Real estate is not an automatic ticket out of financial trouble. Some people have gambled their way out of debt by buying distressed properties and reselling them at a profit. They’re the lucky ones – and after hearing so much about the “flipping” phenomenon, many of those success stories might be apocryphal. Be aware of your risk tolerance at all times.
Enter the foreclosure market carefully. With all the reports of subprime borrowers losing their homes in recent months, don’t think those foreclosure numbers will automatically provide you with a can’t-miss opportunity in real estate. Taking advantage of the foreclosure market is both a learning exercise and an emotional one. It takes time to learn all the correct avenues in a community toward investing successfully in failed properties, and actual contact with families losing their homes can be wrenching even if you do know what you’re doing. Foreclosure and pre-foreclosure investing is not for the faint-hearted.
Cash is king. During the white-hot real estate market, people were buying and selling property for little or no money down because lenders were willing to take that risk. Today, in a higher rate environment, that’s definitely changed. While many successful real estate investors choreograph borrowing seamlessly into their strategy, cash is an important decision for down payments and covering ongoing expenses. This is where your advisory team comes in.
Keep your credit report clean: Only borrowers with the highest credit scores will find the best lending deals if they need to borrow. Make sure your credit report is clean before you enter the market.
July 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA
Monday, July 23, 2007
Monday, July 16, 2007
Divorce Can Sink Your Health Coverage – What To Do First
When a marriage comes undone, so can an ex-spouse’s health insurance safety net. For the spouse facing a loss of coverage, it’s a double whammy. First, they’re in a rushed position to find coverage. Second, they’ll be shocked to find out how much it costs.
Buying individual coverage is a huge wake-up call today, and it’s a particularly harsh reality to scramble for coverage in a divorce situation if they’re less than 65 years of age (when Medicare kicks in). A February study by the Henry J. Kaiser Family Foundation said that in 2006, annual insurance premiums for individuals averaged a total $4,242. For a family, that average was $11,480. For those in group plans, workers picked up 16 percent of that total for individual coverage and 27 percent for family coverage.
For individuals stuck paying for their own coverage, those numbers can be unaffordable. It’s a particularly big problem for women because they are more likely than men to be covered as dependants. Kaiser reported that in 2004, one in six privately insured women reported she postponed or went without needed care because she couldn't afford it.
Here are some important things individuals can do to assure they have affordable health coverage when facing a divorce:
Try to get on your own plan at work: If you are employed but have been on your spouse’s plan, make your first phone call to human resources at your employer and ask if and when you can enroll. If you can’t enroll immediately, see if you can keep your ex-spouse’s plan through COBRA, which we’ll discuss next. You and your dependent children may be eligible for a special enrollment period under provisions of the Health Insurance Portability and Accountability Act (HIPAA).
Go COBRA: In 1986, Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA), which provides employees, retirees, spouses, former spouses and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available when coverage is lost due to certain specific events – fortunately, divorce is one of them. Buying coverage under COBRA means you’ll be paying the full premium for coverage (sometimes up to 102 percent). You’ll have up to 36 months to keep COBRA coverage, which is a good period of time to find a better option. Remember that companies with under 20 workers don’t have to comply with COBRA.
See if your spouse can keep the kids on his or her plan: It’s traditional -- though far from guaranteed -- that the higher-earning spouse agrees to put the kids on his or her health plan. To force the spouse who’s losing coverage to absorb the cost of health insurance for themselves and their dependents can be financially devastating, so if you are in this position, make it a key point in your divorce settlement negotiations.
Seek out coverage at associations: If you are a part-time worker not eligible for work-based coverage, consider coverage through an industry or professional association that markets health coverage to its members. The coverage is typically very basic and you need to scrupulously check out the quality of benefits, but for basic coverage, it’s a Band-Aid until you can qualify for something better.
Go for a high-deductible policy if you can afford it: High-deductible policies (policies with a deductible of at least $1,000) are a better deal for healthy individuals who want to keep their monthly premiums lower. Insurance agents who market individual health insurance sell these health policies, which are called “catastrophic” insurance because they cover major medical expenses as long as policyholders pay for routine care out-of-pocket. With many of these plans you have the option to open a health savings account (HSA) to help you offset the amount of that big deductible in a tax-advantaged account.
Get necessary healthcare expenses out of the way: With so many details individuals face during a divorce, it might be easy to forget this, but if you need glasses or if you planned on any elective medical procedures, get them done before you go off your spouse’s coverage or have to switch to COBRA. That goes for spending out your share of the dollars in the medical savings account (MSA) you have under your spouse’s coverage. Don’t be sneaky about it; just make it part of your agreement.
July 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA
Buying individual coverage is a huge wake-up call today, and it’s a particularly harsh reality to scramble for coverage in a divorce situation if they’re less than 65 years of age (when Medicare kicks in). A February study by the Henry J. Kaiser Family Foundation said that in 2006, annual insurance premiums for individuals averaged a total $4,242. For a family, that average was $11,480. For those in group plans, workers picked up 16 percent of that total for individual coverage and 27 percent for family coverage.
For individuals stuck paying for their own coverage, those numbers can be unaffordable. It’s a particularly big problem for women because they are more likely than men to be covered as dependants. Kaiser reported that in 2004, one in six privately insured women reported she postponed or went without needed care because she couldn't afford it.
Here are some important things individuals can do to assure they have affordable health coverage when facing a divorce:
Try to get on your own plan at work: If you are employed but have been on your spouse’s plan, make your first phone call to human resources at your employer and ask if and when you can enroll. If you can’t enroll immediately, see if you can keep your ex-spouse’s plan through COBRA, which we’ll discuss next. You and your dependent children may be eligible for a special enrollment period under provisions of the Health Insurance Portability and Accountability Act (HIPAA).
Go COBRA: In 1986, Congress passed the Consolidated Omnibus Budget Reconciliation Act (COBRA), which provides employees, retirees, spouses, former spouses and dependent children the right to temporary continuation of health coverage at group rates. This coverage, however, is only available when coverage is lost due to certain specific events – fortunately, divorce is one of them. Buying coverage under COBRA means you’ll be paying the full premium for coverage (sometimes up to 102 percent). You’ll have up to 36 months to keep COBRA coverage, which is a good period of time to find a better option. Remember that companies with under 20 workers don’t have to comply with COBRA.
See if your spouse can keep the kids on his or her plan: It’s traditional -- though far from guaranteed -- that the higher-earning spouse agrees to put the kids on his or her health plan. To force the spouse who’s losing coverage to absorb the cost of health insurance for themselves and their dependents can be financially devastating, so if you are in this position, make it a key point in your divorce settlement negotiations.
Seek out coverage at associations: If you are a part-time worker not eligible for work-based coverage, consider coverage through an industry or professional association that markets health coverage to its members. The coverage is typically very basic and you need to scrupulously check out the quality of benefits, but for basic coverage, it’s a Band-Aid until you can qualify for something better.
Go for a high-deductible policy if you can afford it: High-deductible policies (policies with a deductible of at least $1,000) are a better deal for healthy individuals who want to keep their monthly premiums lower. Insurance agents who market individual health insurance sell these health policies, which are called “catastrophic” insurance because they cover major medical expenses as long as policyholders pay for routine care out-of-pocket. With many of these plans you have the option to open a health savings account (HSA) to help you offset the amount of that big deductible in a tax-advantaged account.
Get necessary healthcare expenses out of the way: With so many details individuals face during a divorce, it might be easy to forget this, but if you need glasses or if you planned on any elective medical procedures, get them done before you go off your spouse’s coverage or have to switch to COBRA. That goes for spending out your share of the dollars in the medical savings account (MSA) you have under your spouse’s coverage. Don’t be sneaky about it; just make it part of your agreement.
July 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA
Monday, July 9, 2007
The Best Time for a Business Disaster Plan? Before the Disaster Happens
Before 9/11 and Hurricane Katrina, the concept of a business “disaster plan” was envisioned mainly in terms of weather- or fire-related disasters and heavy on the notion of evacuation.
The concept of business risk today is so much wider – legal threats from inside and outside the company, computer-related losses, regulatory threats, and of course, the potential of human and facility losses due to natural disasters or the possibility of terrorism. There really is no one-size-fits-all approach to dealing with business risk – variables like your business size and structure and personal issues like your age, health and your time to retirement also factor into what should be a very customized risk management plan.
If you are starting a business or already own or co-own a company, the first steps in creating a disaster plan should involve separate visits to tax, insurance and qualified financial advisers. A CERTIFIED FINANCIAL PLANNER™ professional with specific expertise in helping business owners plan their finances is a good place to start. Here are some general issues you should consider in developing an overall business disaster plan:
Your plan depends in large part on your industry and business structure. A three-person law partnership may have a completely different risk profile than a sole proprietor working out of his attic or the owner of a body shop. Whether you use expensive equipment in your business or if all you produce is valuable ideas on paper, you need to take specific steps to protect the value of your business assets in tandem with your personal finances. This process should start with a financial review to review how to protect your home, your income stream and your retirement savings if particular scenarios happen.
Develop a “what if” list. Be as imaginative and as negative as possible about this. Consider every possible event that could hurt you or your business – what hurts one automatically hurts the other. The first question – what if you died or became disabled tomorrow? Others might refer to some specific physical plant or computer risks as well as employee or customer risks that could affect your future operations. A good way to make the list is to draw a line down the middle. On the left side, list every possible risk, while writing every possible remedy for those risks on the right side. Prepare this list before you meet with experts.
Protect yourself first. If you’re a good boss, you care about your employees and your customers, and we’ll get to them in a moment. But the first step in a business disaster plan is to review your list of worst-case scenarios and review how you would protect your home, your health, your retirement, your kids’ education and your estate priorities first. If your business fails for any reason, all of those critical necessities could be jeopardized. Make sure you have appropriate life and disability insurance coverage in addition to a current estate plan.
Protect your employees second. In a natural or man-made disaster, lives can be lost. But if you’re closed for weeks and months, key employees may leave and that might be a greater long-term danger to your company. Talk to your insurance company about every physical and employment risk your staff could face in a disaster and see what safety nets are available.
Protect your customers third. If you faced a lengthy business interruption, how would you serve the customers who are depending on you? Are there specific customer service and inventory procedures in place to keep them informed, supplied and most important, loyal once you’re up and running again? Do you have options for alternate office and production space as well as resources for temporary workers?
Protect your information. You don’t have to be some high-tech firm to understand the value of proprietary information that keeps your company running. From proprietary databases and research to customer credit information, this data is critical fuel for your business. What’s to keep a burglar from stealing your computers and taking all your valuable financial, inventory and customer data with them? Better yet, what’s to keep a computer hacker from stealing the information and leaving the machines behind? Data security and backup procedures are increasingly important as disaster-planning priorities. Get help finding the protective measures that fit your industry.
July 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA
The concept of business risk today is so much wider – legal threats from inside and outside the company, computer-related losses, regulatory threats, and of course, the potential of human and facility losses due to natural disasters or the possibility of terrorism. There really is no one-size-fits-all approach to dealing with business risk – variables like your business size and structure and personal issues like your age, health and your time to retirement also factor into what should be a very customized risk management plan.
If you are starting a business or already own or co-own a company, the first steps in creating a disaster plan should involve separate visits to tax, insurance and qualified financial advisers. A CERTIFIED FINANCIAL PLANNER™ professional with specific expertise in helping business owners plan their finances is a good place to start. Here are some general issues you should consider in developing an overall business disaster plan:
Your plan depends in large part on your industry and business structure. A three-person law partnership may have a completely different risk profile than a sole proprietor working out of his attic or the owner of a body shop. Whether you use expensive equipment in your business or if all you produce is valuable ideas on paper, you need to take specific steps to protect the value of your business assets in tandem with your personal finances. This process should start with a financial review to review how to protect your home, your income stream and your retirement savings if particular scenarios happen.
Develop a “what if” list. Be as imaginative and as negative as possible about this. Consider every possible event that could hurt you or your business – what hurts one automatically hurts the other. The first question – what if you died or became disabled tomorrow? Others might refer to some specific physical plant or computer risks as well as employee or customer risks that could affect your future operations. A good way to make the list is to draw a line down the middle. On the left side, list every possible risk, while writing every possible remedy for those risks on the right side. Prepare this list before you meet with experts.
Protect yourself first. If you’re a good boss, you care about your employees and your customers, and we’ll get to them in a moment. But the first step in a business disaster plan is to review your list of worst-case scenarios and review how you would protect your home, your health, your retirement, your kids’ education and your estate priorities first. If your business fails for any reason, all of those critical necessities could be jeopardized. Make sure you have appropriate life and disability insurance coverage in addition to a current estate plan.
Protect your employees second. In a natural or man-made disaster, lives can be lost. But if you’re closed for weeks and months, key employees may leave and that might be a greater long-term danger to your company. Talk to your insurance company about every physical and employment risk your staff could face in a disaster and see what safety nets are available.
Protect your customers third. If you faced a lengthy business interruption, how would you serve the customers who are depending on you? Are there specific customer service and inventory procedures in place to keep them informed, supplied and most important, loyal once you’re up and running again? Do you have options for alternate office and production space as well as resources for temporary workers?
Protect your information. You don’t have to be some high-tech firm to understand the value of proprietary information that keeps your company running. From proprietary databases and research to customer credit information, this data is critical fuel for your business. What’s to keep a burglar from stealing your computers and taking all your valuable financial, inventory and customer data with them? Better yet, what’s to keep a computer hacker from stealing the information and leaving the machines behind? Data security and backup procedures are increasingly important as disaster-planning priorities. Get help finding the protective measures that fit your industry.
July 2007 — This column is produced by the Financial Planning Association, the membership organization for the financial planning community, and is provided by, a local member of FPA
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