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Archive for Investor
Dec
30
Safe High Return Investments Naples: Basics Stock Investment Knowleadge for Beginners
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To invest into stock market or other securities is quite a very critical decision every investor should note before taking a step into ”The Bull Market” I choose to call it ”The Bull Market” because, the benefits and profits in the stock market is quite enormous. The stock market is the only business transaction that its resource is yet untapped, you stand a great chance of profiting unlimitedly in trading stock, as well as losing every thing you have worked for all your life into stock market just in a twinkle of eye.
That is the more reason why every investor should think twice and think very carefully before investing into stock market, to tell you the fact, the stock market is not for every body. The stock market is meant for people who are willing to take risk, people who have extra to spend, people who are credit free, people who are independent, people who are financially free and people who are strong and willing to stand any financial risk situation. Before you invest into stock, you need to know your self and most importantly your financial status, because stock trading is very volatile, risky and that is the more reason why you need to check your self and your background before investing your money to avoid losing your hard earned money.
To invest into stock market or other securities is quite a very critical decision every investor should note before taking a step into ”The Bull Market” I choose to call it ”The Bull Market” because, the benefits and profits in the stock market is quite enormous. The stock market is the only business transaction that its resource is yet untapped, you stand a great chance of profiting unlimitedly in trading stock, as well as losing every thing you have worked for all your life into stock market just in a twinkle of eye.
That is the more reason why every investor should think twice and think very carefully before investing into stock market, to tell you the fact, the stock market is not for every body. The stock market is meant for people who are willing to take risk, people who have extra to spend, people who are credit free, people who are independent, people who are financially free and people who are strong and willing to stand any financial risk situation. Before you invest into stock, you need to know your self and most importantly your financial status, because stock trading is very volatile, risky and that is the more reason why you need to check your self and your background before investing your money to avoid losing your hard earned money.
Investment Plan:
Every beginner needs to have an investing plan, weather you are beginning to trade/invest into stocks, bonds, mutual funds, futures, forex, real estate, equity and many other financial market. You need to have a plan point of how much risk you are willing to take at the starting point, and the investing plan is ”How Much Are You Willing To Risk” on your starting point. You need to start investing from some where, but where it will not affect your financial status even if you lose your capital margin into the investment.
Before you invest your money, make sure to start with as little as you can afford to risk, that will make you not to lose all you have and at the same time, it will prompt you more opportunity to harness on the transaction to ascertain if it actually worth investing your hard earned money into such business. Dont risk investing the amount of money you can not afford to lose, all security transactions are very profiting but at the same time you can lose so much into the transactions as well.
The Beginners Target Of Investing:
The target of every investor is to make profit, and by that you need to invest your money into a very lucrative and legitimate kind of transactions that will yield better interests and profits, as a beginner, you dont know the most lucrative and legitimate transactions to invest your money yet, but before you invest, make research about the business to know certain things before you jump into such transaction, but it has been proven that security investments like stock, bonds, mutual funds, equity, futures, forex and other financial transactions yields more better profits in short time investment than other investments, which is the more reason why investors are destinating to invest into financial/securities in order to reap from the untaped profiting ventures.
Because of the volatile in the security transactions, prices tend to rise over time, which gradually increasing your money to profit, in this aspect you have benefited from the investment when the prices ascends up. It can also fall over time as well as decreasing the margin of your investment, in this aspect you are losing your money into the investment when the prices descends down. Therefore, investing your money into transactions is not only to make profits but it will also give you the opportunity to make turn over of your money, which also increases the weight and value of the money you have into more strong money. However, investments requires strategies, good decisions, careful planning and patience in order to make a better returns in your transactions.
High Return Investments Naples
Nov
22
Why real estate is a good investment?
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Of all possible investments that are within the reach of the average investor, none ofter the combination of outstanding benefits that are available to real estate investors. And, do you want to know something, banks and life insurance companies recognise this fact!
So they invest your money in real estate. While they pay you 1 to 3 percent for the use of your money, they are making 10 to 20 percent on it.
Why is real estate such a good investment? It offers the investor at least five different returns or ways of making money, on his investment.
Gross spendable income – cash flow
Investors also refer to this as “cash flow” or how much money that you can spend at the end of the month or year after all the operating expenses and mortgage payments have been made. We also call this as “gross” spendable because we have not taken income tax consequences into consideration at this point.
We always purchase properties that cash-flow. It takes time to find them, but it is well worth the effort. The simplest definition of positive cash flow is that you collect more revenue, usually in the form of rent, than it takes to pay for and operate the property.
A big advantage of real estate over other investments is that it can produce cash flow on a monthly basis. The cash generated by a real estate investment will always be a much larger percentage cash-on-cash return than any other investment.
The beauty of a cash-flowing real estate property is that it can help you become financially free. We discussed two real life examples of such real estate property in “How to know if a property investment is worth investing?”
Equity income
This is also referred to as equity buildup or principal reduction. Anyone who has had a mortgage on a home or car recognises that each time a payment is made, a certain portion of that payment is for the interest charged by the lender and the balance goes toward reducing the balance on the loan.
In a real estate investment, this equity income can be a sizeable amount. Although you cannot spend it each month, when the time comes to sell your property, you owe less on the mortgage, so you will receive more money at closing. It’s like putting money in the bank each month.
Making inflation work for you instead of against you – appreciation
Like inflation, you do not see it but it’s there. Only now, it’s working for you instead of against you. How does it work? Each year, because of inflation, your real estate is appreciating in value. Those of you who own a home, for example, would you sell it today at the same price you paid for it five or ten years ago?
We keep on having babies but God quit making land a long time ago. The supply is limited.
What does this mean in terms of existing land values? It means that existing land is becoming more and more valuable each year. It explains why investment real estate, whether in single family homes, apartment buildings, office buildings, shopping centres, ware houses and even vacant land, has become the most secure and profitable way to beat inflation. Existing land in most parts of the country, is appreciating at a rate greater than that of inflation.
How real estate stacks up against other investments – leverage
Leverage is an interesting thing about investing in real estate. It’s more than likely you have heard the term Other People’s Money, or OPM. The concept is simple and powerful.
The OPM concept is using money generated from someone or something other you in order to start a business or acquire an asset. While it is true that you can do this to an extent with stocks through buying on margin, the fact is that there is no investment where the application of this tool is more powerful than in real estate.
In real estate the leverage is based on the asset itself and you can get a bank to loan you the money up to 90 percent, and sometimes even 95 to 100 percent, of the total asset value. Why do banks do this?
Because they can repossess the physical asset itself should you default. Buying stocks on margin, however, allows you to borrow no more than 50 percent of the stock portfolio value. Just try to get bank to loan you the money for buying stocks – let alone your margin! Instead, you have to buy through a brokerage – at a high interest rate. In other words, when you buy stocks on margin, you are taking the risk. But when you take out a loan to buy real estate, the bank is assuming the risk. – Ken McElroy in “The Advance Guide to Real Estate Investing”
You can see the power of leveraging demonstrated by real life cases in our article “Why you want to take up a loan for your real estate investment?” No other form of investing allows an investor the opportunity to control so much with a small amount of his own cash.
We further discussed in “How to finance your real estate investment for maximum return?” the ways to structure a mortgage loan in order to get the maximum return from your cash investment in real estate.
An investment that allows you to control
A unique advantage to real estate is that you can control it. In other types of investments, you give your money to a financial advisor and they place it for you in a company’s stock, a bond, or a mutual fund. What happens after that is completely out of your control. You have no ability to make operating decision for the company you have invested in; you are at the mercy of its managers.
Similarly, you have no control over financial markets when you purchase bonds or futures. You make a calculated guess, and then you sit back and watch. With these types of investments, the only control you have is choosing whether to buy or to sell.
Real estate is different. You purchase a tangible asset and you manage it. While there are still external market conditions that affect your investment, the difference is that you have the ability to manipulate the operations of your investment to respond to those conditions. Instead of being reactive (buying or selling), you are being proactive.
For example, if you are a landlord, you have the ability to manipulate rents based on changing market conditions in order to maximise income. This doesn’t always mean raising rents. The goal is to maximise income. Since it is a dynamic process, that might mean lowering rent or offering an incentive. A property’s occupancy comes into place here.
If you have the highest rents in a market, chances are potential tenants will rent from a direct competitor. Then all your high rents become lost potential income. The dynamic of real estate require you to keep occupancy, as well as rents, high.
You have the power in real estate to control the operational performance of your asset more than any other investment.
Coming from a humble little town called Tangkak in north Johor state of Malaysia, OngKL has chances to learn and work both in Johor Bahru and Singapore – a conurbation with 6.49 million still fast growing population – since year 1996. He is now having a chance to contribute back to the community by sharing what he sees, what he knows and what he learns in this wonderful place.
High Return Investments Naples
Nov
01
Is Buying a House a Good Investment?
Posted by: | CommentsSafe High Return Investments Naples
Intended Audience
Individuals looking to purchase a home for personal use or as an investment. As well, looking into conventional wisdom’s statement that buying a house is one of the best investments someone can make.
Summary Points to Take Away
Analysis
Conventional wisdom states that buying a house is one of the smartest and best investments an individual can make. This article is geared towards challenging this conclusion to see whether this statement rears any truth to it.
Why a House is a Good Investment?
Forced Savings Plan
Most individuals claim that the purchase of their personal home was the best investment they’ve ever made, which is true in most cases because it is the only investment they’ve ever made. The general public struggles with saving for retirement; thus, purchasing a house assists in that problem as it forces individuals to continuously pay down the mortgage (or lose the house in a foreclosure to the bank); therefore, allows the storing of equity for the owners. This built up equity (i.e. market value of home minus remaining mortgage) can be borrowed against during their retirement years or they can downgrad into a less expensive house in order to provide some retirement funds to the owner. If individuals take a disciplined approach to saving, then the benefit of being forced to save in order to pay for a house diminishes
Leverage
Typical real estate purchase require only a 5% deposit, while the remaining amount can be borrowed through bank debt. Few alternative investments outside of real estate can the acquirer obtain such significant leverage, which can enhance investment returns.
Example, suppose that you purchased a home for $200k, for which you made a 5% deposit down ($10k). During the next few years the house appreciates in value and you sell it for $220k (10% higher than the level you purchased it). Though the return on the house is only 10%, the return to the investor based on invested funds sunk into the home ($10k) is 200% ($20k earned over $10k investment) – that is the power of leverage. On the negative side, more debt means higher fixed monthly mortgage payments; thus, higher risk of being able to make the monthly mortgage payments. As long as cash flow is not a concern and the mortgage payments can be met – investments should be leveraged to maximize returns to the investor. Could you imagine walking into a bank and asking for $100k to invest in equities while only putting 5% down – likely to never happen, this is a major benefit of real estate ownership.
Inflation Resistant
Real estate holds its value during inflationary periods; thus, acts as a hedge against the investors other assets that aren’t protective against inflation (ex. Currency). The asset will continue to hold its buying power (store of value), which is difficult to get outside of investing in precious metals. The reason real estate holds its value is there is the same number of houses that the increased monetary supply of dollars are chasing; thus, it’ll take more dollars to purchase the houses as the supply of houses stays stagnate while the demand rises (due to the increase in the number of dollars in everyone’s hands). This can become critical given the current economic times and numerous expansions of monetary supply across many nations, which will have the aftermath affect of higher inflation.
Capital Gain is Tax FreeIn Canada, every home owner is provided with a capital gain exemption on amounts earned in excess of cost for their principal residence. Only one piece of real estate can be claimed as the principal residence per individual. For example, if you owned a home and a cottage, only one of those houses upon selling could take advantage of the principal residence exemption. No other asset class has such advantageous tax reduction characteristics. Unfortunately this is a onetime event; thus, those holding numerous pieces of real estate can only apply it to one property.
Allows for Control over the Asset
Real estate is typically an investment an individual has control over (assuming you’re the majority owner – which is typically the case) by the means of the owner has the ability to increase the value of the asset, which may not be the case in most other investment opportunities. When purchasing real estate, owners can make capital improvements to the home (ex. Finished basement, new porch, etc.), which will increase the value of the property (capital appreciation) as compared to purchasing stocks or mutual funds as assets where the owner can’t take action to increase the value of those assets (unless they’re a significant owner, greater than 20% – which is typically unlikely). The ability to control an asset adds value to the owner through what is known as a control premium, as a real estate asset may be more valuable in the hands of some individuals over others.
Why a House is a Bad Investment
Lack of Diversification
Average individual thinks the stock market is very risky while investing in real estate is more of a certainty. Purchasing equities allows the owner to conveniently hedge their risk amongst various companies in numerous industries, countries, etc. The purchase of real estate doesn’t provide the ability to diversify risk away as easily unless an investor plans on owning numerous pieces of different types of properties (ex. residential, commercial, resorts, etc) across various markets (North America, Europe, etc) – which is probably very unlikely for the average investor. Purchasing real estate prevents the diversification of risk because it’s dependent on the economic, migration, and regulation trends of the local area.
For example, assume you purchased a home in Oshawa, Ontario – which is a town extremely reliant on the large manufacturing facility of General Motors (GM). Should GM cut back on production or move their facility housing prices would fall sharply as it is the biggest employer in the area; thus, demand from individuals will decline as unemployment rises and real incomes fall. With a decline in demand and supply staying stagnate (as you typically can’t “un-build” a house once it’s constructed) the price will have to shift towards in order to align demand with supply.
Real estate doesn’t allow the investor to diversify away the specific risks in the local area as compared to purchasing equities, which allows the investor to spread risk amongst investments that perform differently during different points along the business cycle. Most individuals when purchasing real estate have all their eggs in one basket.
Maintenance Costs
Transaction and maintenance costs are significantly higher for real estate investments than stocks, mutual funds, etc. When purchasing stocks costs are typically broker commissions ($20 per transaction if using an online discount broker), while when purchasing a home it is typically 2% commission on the transaction value, significantly higher than purchasing equities.
Once you purchase shares, no further cash is required from the investor unlike real estate, which requires constant annual expenditures that continue to increase the investors cash committed towards the property, such as property taxes, insurance, utilities, maintenance and repairs of the asset, etc. These are costs that real estate investors or home purchasers don’t factor into their expected return, but play a significant role as the payment of property taxes (etc.) doesn’t contribute to the value of the property for eventual sale in the hopes of capital appreciation.
Historical Lower Returns Compared to Equities
During any 20 year period throughout history, no other asset class has outperformed equities, which includes real estate. This is from the perspective of asset vs. asset without consideration of leverage and how that may enhance returns (as discussed earlier). While it is true that over the long run real estate prices go up in value, this is typically due to inflation incurred. Recent spikes in housing prices seen in the past 10 to 15 years has been due to changing demographics, specifically the baby boomer generation (who makes up largest segment of the population in North America) go through life stages at the same time (same goes for starting a family and purchasing a home and real estate investment property). The result was a large influx in demand without a corresponding increase in supply as construction requires lead time; thus, leading to rising real estate prices.
Will this high demand continue? That’s where the argument lies. Likely there will be softness felt in overall real estate demand as baby boomers already have their homes and they’re likely to either stay put, move to retirement homes or downgrade into a smaller place in order to obtain some retirement income. Immigration will continue into North America that will prop up demand, but likely not the extent to fulfill the whole in demand left by the baby boomer generation; therefore, the future appreciation in real estate properties is likely to flatten out.
Can’t Take Advantage of Available Opportunities
The purchase of a home or real estate property requires the individual to tie up a significant portion of their net worth into the property (in a lot of cases, all of it). Having all your net worth in real estate is a risky strategy as you’ll be severely impacted by movements in real estate prices as compared to having your cash tied up into several asset classes; thus, less vulnerable to swings in any one asset class. Similar to the discussion had under the “diversification” section of this article.
With the majority of an investors net worth tied up in a real estate property, there isn’t available cash to take advantage of other opportunities that come along; thus, significant opportunity costs are involved in venturing into real estate. This should be considered before purchasing an expensive personal home or making a real estate investment.
Limited Scope
Real estate is a local good, unlike gold for example – which can be bought and sold throughout the year for the same market price. An individual looking to buy a personal home or make a real estate investment doesn’t have access to all available properties as there are physical limitations to contend with. It comes down to wanting to live where you grew up or currently work or not wanting to buy a rental property far from your home in order to reduce logistical issues. For example, if you live in Toronto, Ontario and are looking to make an investment in a rental property, you’re unlikely to consider properties in Paris, France though the opportunities may be better than those surrounding Toronto due to language and logistic issues. Equities (and etc.) are globally traded and available; thus, users can take advantage of opportunities around the world; thus, their scope is not limited to the local area of their current surroundings like real estate is.
Additional Points to consider if you’re purchasing a Home for Personal Use.
Doesn’t Provide Any Cash Flow
An asset typically provides you with cash flow, i.e. puts cash in your pocket. When purchasing a home, cash only flows out (property taxes, repairs, etc.); some would argue that if it appreciates in value then it is an asset. In this instance it is only an asset when converted into cash and if that is the case, where will you live? Likely end up buying a new house, which has also gone up in value similar to your house. This makes it difficult to realize the value of your personal home appreciation, which acts more like a liability than an asset since it takes cash out of your pocket instead of putting some in there.
Tax Deductibility of Interest
Interest expense paid due to bank loans taken to finance investment properties is deductable against income because the investor is pursuing income and tax legislation allows deduction of any expenses incurred in the pursuit of income. This is not the case for a mortgage taken out to purchase a house for personal use as the individual is not in the pursuit of income; thus, interest expense is paid with after tax dollars, with no tax shelter provided. If those funds had been borrowed to invest in equities or mutual funds, the interest would be deductable because again that would count towards the theme of pursuing income.
Can Get Personal Joy Out of It
Unlike equities and other alternative investments, the investor can’t personally use or get joy out of it as compared to purchasing a home, which the individual can live in and enjoy during the investment process. An investor who purchases shares in General Motors (GM) can’t exactly borrow and test drive cars whenever they please simply because they’re a part owner. This is a qualitative benefit that is difficult to quantify, but should be considered.
Where to go from here?
The main reason to purchase a house is to have somewhere to live and enjoy their life, don’t think of it as an investment. Buying a home isn’t a bad decision; it is the investor’s perception that may be tainted because it is important to realize that there are many arguments against a home as an investment to be considered. Don’t buy real estate property with the mindset that an individual can’t lose and that there is no better investment opportunity than to purchase a home, etc. Beware of conventional wisdom that states there is no better investment than purchasing a house.
THANKS,
SIMON GIANNAKIS
Simon Giannakis is the founder and creator of www.THATSTOCKGUY.NET. He currently is a Senior Accountant within the Assurance and Advisory group at Deloitte & Touche LLP in Toronto, Ontario. He has a BBA degree from Wilfrid Laurier University and is currently pursuing both CA and CFA designations. Simon can be contacted through thatstockguy.net@gmail.com. IF YOU WOULD LIKE TO CONTRIBUTE AN ARTICLE TO THATSTOCKGUY.NET, PLEASE CONTACT US.
High Return Investments Naples
Oct
20
Amazon.com Review
Among the library of investment books promising no-fail strategies for riches, Benjamin Graham’s classic, The Intelligent Investor, offers no guarantees or gimmicks but overflows with the wisdom at the core of all good portfolio management.
The hallmark of Graham’s philosophy is not profit maximization but loss minimization. In this respect, The Intelligent Investor is a book for true investors, not speculators or day traders. He provides, “in a form suitable for the laymen, guidance in adoption and execution of an investment policy” (1). This policy is inherently for the longer term and requires a commitment of effort. Where the speculator follows market trends, the investor uses discipline, research, and his analytical ability to make unpopular but sound investments in bargains relative to current asset value. Graham coaches the investor to develop a rational plan for buying stocks and bonds, and he argues that this plan must be a bulwark against emotional behavior that will always be tempting during abrupt bull and bear markets.
Since it was first published in 1949, Graham’s investment guide has sold over a million copies and has been praised by such luminaries as Warren E. Buffet as “the best book on investing ever written.” These accolades are well deserved. In its new form–with commentary on each chapter and extensive footnotes prepared by senior Money editor, Jason Zweig–the classic is now updated in light of changes in investment vehicles and market activities since 1972. What remains is a better book. Graham’s sage advice, analytical guides, and cautionary tales are still valid for the contemporary investor, and Zweig’s commentaries demonstrate the relevance of Graham’s principles in light of 1990s and early twenty-first century market trends. –Patrick O’Kelley
Review
“The wider Mr. Grahams gospel spreads, the more fairly the market will deal with its public.” — Barron’s