Archive for July, 2009

Home prices in metro Atlanta have decreased during the past couple of years but the decrease is not nearly as severe as in some other parts of the country. Atlanta prices have never fluctuated wildly and consequently are not likely to do so in the future.
 
Assume a property is selling for $220,000 today. If you purchase it today with a 30-year, fixed rate 80/20 mortgage, your down payment is $44,000 and your monthly payments on the $176,000 mortgage are $1009.15 at the current (approximate) interest rate of 5.5%.  For the sake of illustration, let’s assume a worst case scenario:  Assume that same house depreciates 10% in value over the next year. That means it would sell for $198,000 ($220,000 minus $22,000).
 
While no one knows for sure what is going to happen to mortgage rates in the future, the general consensus is they will increase. Again for the sake of illustration, let’s assume they will increase from the current 5.5% to 6.5% one year from now. If you still want to buy that house with a 30-year, fixed rate 80/20 mortgage, your down payment would be $39,600, your loan amount would be $158,400 and your monthly payment with a 6.5% mortgage rate would be $1010.82…almost exactly the same as your monthly payment for that house today. (Of course, your required down payment will be $4400 less, but your monthly payment will be essentially the same – and the annual tax savings you will get during the year will offset most of that amount.)
 
Nobody can guarantee anything about future home prices or mortgages rates. However, most professionals in the business today would agree that the chances of mortgage rates going up at least a point in the next twelve months are greater than the chances home prices in Atlanta declining by as much as 10%. That means buying a home today – instead of waiting for prices to start going up – is the smarter option.
 
Three final reasons:  FHA loans may be available up with as little as 3.5% down. If you are a first-time homeowner (have not owned a home in the last three years) you are entitled to a federal tax credit up to $8,000 if you purchase and close by December 1, 2009.  There may also be additional tax credits if you buy a qualifying bank-owned home. I can provide additional details of these programs if you like.
 
Please let me know if you know of anyone in Atlanta who may be waiting for a better time to buy. The time is now.  
 
Burt Cloud
Associate Broker
Coldwell Banker Residential Brokerage
404-626-3114

It’s a question we all face almost every day: debit or credit? 
 
You can run a debit card as a credit card transaction, but can not run a credit card as a debit card transaction. However, most credit cards can be used to obtain a cash advance from an ATM. Talk to your credit card company about this service, but the interest rates are usually higher for a cash advance.
 
Using a debit card as a credit card does not magically create a line of credit, it changes how you verify the transaction. Running the card as a debit requires you to enter a Personal Identification Number (PIN) and running the card as a credit requires you to sign for the transaction.
 
One main difference is how they are processed. A debit transaction is instantaneous while a credit transaction may take a couple of days because merchants usually run these in batches. Another difference is fees for merchants: typically a credit card transaction cost the merchant a little more.
 
While it is more advantageous to run a debit card as a debit card for a merchant it is more advantageous to run a debit card as a credit card for the consumer. When a debit card is run as a credit transaction you have the same protection as credit card customers, which is typically better than debit protection in terms of not being liable for unauthorized purchases as Federal law affords credit card consumers better protection than debit card users. Getting money back in the event of fraud is much easier for credit customers than for debit users.

In this tough economy, it is more important than ever to be sure you are on the right track for achieving your financial goals.  Our new A La Carte Planning option allows you to choose the specific financial goals that are most important to you.  Or, you can still opt for the comprehensive plan.  (Package discounts available upon request.)
 
Our new planning option was specifically designed to make our services more accessible for consumers who are trying to navigate these uncertain times.  At Alberty Financial, we are dedicated to helping our clients achieve peace of mind by providing them a roadmap for a strong financial foundation.
 
http://www.albertyfinancial.com/start-planning/services-fees/#a%20la%20carte

Last summer my Peachtree Quarterly message was inspired by “Gimme Shelter” by the Rolling Stones. The market in the spring of 2008 was becoming more volatile as a precursor to calamitous events to come. Later in the summer, corporate earnings started to collapse, and then the market went into free fall.

These times are, I believe, more appropriate for the Beatles. We have been getting by “with a little help from our friends” in government. Since taking office in January 2009, the Obama administration has been throwing a lot of money at our economy trying to revive it. They have implemented one giant stimulus package and may be considering another. They are working to reform health care, improve education and create a new category of “green” jobs, all as a means of putting people back to work and easing the economic pressure, especially on the middle class. It remains to be seen whether these efforts will provide enough return on the investment of all of us who pay taxes.

Unfortunately, the government efforts are hampered by the current contraction among consumers. For the first time in decades, the U.S. savings rate is going up. That is good news in the long term because much of the current financial crisis was caused by people spending beyond their means. Americans are realizing that they no longer can afford to spend money they don’t have, and they appear to be making an effort to put their financial houses in order.

That is bad news in the short term, though. Consumer spending is the major driver of the U.S. economy. The reluctance of the consumer to go shopping has hampered the recovery effort, just as consumer spending created much of the boom that preceded this recession. Shoppers hit the malls armed with credit cards. Home buyers used ridiculously easy mortgages to buy houses they could not really afford. And many people started to live off their home equity. Then the housing market collapsed, and home equity disappeared. Credit for mortgages and other loans also dried up. Credit card companies raised interest rates and tightened standards. And the American consumer pulled back in a big way. To make matters even worse, the credit crisis and market collapse spread around the world, largely because of foreign involvement in the U.S. credit markets.

The good news is that, with a little help from our friends in Washington, credit markets are beginning to thaw. The bad news is that we are only lending to the best risks. In order for a recovery to be meaningful, the middle class needs to be able to buy houses and cars, and to go shopping again. And that will not happen overnight.

We are in uncharted waters as investors. The government is in uncharted waters as well. The $64,000 question is: Can the Fed supply enough money to keep us afloat? And can they do that while at the same time keeping inflation at bay down the road?

On the corporate earnings side, the surprise so far this year has been an improvement on margins caused by cost cutting and inventory sell-off. Below the surface, however, corporations reported weak revenue growth. Given this situation, the bulls suggest that any kind of revenue growth will fall to the bottom line. The bears counter that investors should not hold their breath until consumer spending, which represents 70% of the economy, comes back.

Since the market lows on March 6, stock indexes have posted three consecutive months of gains. U.S. corporate profits increased $42.6 billion in the first quarter to $1.307 trillion, so the economy contracted less. The question is whether this is a short-term result of cost-cutting or the sign of a longer-term recovery.

So what should investors do? I believe that, now more than ever, is the time to look for high-quality companies with strong fundamentals. That is no guarantee against a drop in stock prices, of course; stocks seem to have been especially capricious in recent weeks. But, in the end, I believe that strong, high-quality companies will survive the current crisis and thrive once the recovery begins. I especially like companies that pay investors a dividend and have a good return on capital. I also like investment grade bonds where you can identify with the company and feel comfortable with their fundamentals.

Meanwhile, we can watch as the government, companies and the markets work to return stability and ease the transition to the next economic cycle. At the moment, we are in a post-credit-bubble cycle. I am confident that we will recover from this and move into a cycle of economic expansion. However, I think there will still be ups and downs before we get there.

Garry K. Schaefer
Atlanta, Georgia
July 22, 2009

Peachtree Investment Quarterly may offer general financial, insurance, tax and business ideas. However, due to the ever-changing tax laws as well as the complexity of the financial industry, you should seek professional advice before implementing any of the ideas contained in this newsletter. Peachtree Investment Partners, LLC(TM), and Osmosis Digital Marketing, Inc. assume no liability whatsoever in connection with the use of this newsletter.

By: Stephen L. Nelson

Protecting Assets With a Limited Liability Company

Business owners and investors often worry about protecting assets from creditors and lawsuits. Of course, sometimes, people worry too much. And careful management of a business or investment coupled with up-to-date liability insurance policies may, in some circumstances, be all a person needs.

However, most business owners and investors should consider the three powerful forms of asset protection that the limited liability company provides. In some circumstances the asset protection provided by a limited liability company can prevent personal or business catastrophe.

Protecting Against Internal Business and Investment Risks

Putting a business or an investment into a limited liability company is the most popular LLC asset protection technique.

By putting your business or an investment into an LLC, for example, you won’t be personally liable for things that happen to or inside the business or investment simply because you own the business or investment.

In comparison, if you directly own or you together with other partners own a business or investment–in a worst case scenario–you can find yourself liable for bad stuff that happens merely because of ownership or co-ownership.

For example, suppose a business you directly own breaches a contract. If the party damaged by the breach sues the business and you’re operating as a sole proprietorship or a general partnership, you might be forced to pay personally any damages because you’re an owner or co-owner.

In comparison, if you own an interest in an LLC that, in turn, owns the business, you probably won’t be liable for the business’s debts (unless you personally promised to guarantee the LLC’s debts or to guarantee the contract).

Segregating Internal Business and Investment Risks

A slightly more sophisticated asset protection technique uses multiple limited liability companies to segregate business or investment risks into different containers.

For example, suppose that you’re a real estate investor that owns six rental properties, and you’ve placed all six rental properties into one limited liability company. In this situation, you won’t find yourself liable for bad things that happen inside the LLC merely because you own the LLC.

For example, if someone slips and falls at one of your rental properties, you probably won’t individually be held liable for any damages that the LLC has to pay because of the accident. However, if you have significant wealth stored inside the LLC–the equity in the six properties–something bad happening at just one of the six properties could wipe out all the wealth you’ve stored in the LLC.

In other words, if legally the LLC has done something “wrong,” all of the assets owned by the LLC may be used to satisfy a creditor or to resolve an actual or threatened lawsuit.

In comparison, if you put each property into its own separate LLC, or if you setup a parent LLC and then put each individual property into a separate child LLC, a worst-case scenario means you lose only what’s inside an individual LLC–which means only a single property.

Obviously, losing a single property might still be a disaster. But invariably losing just one property would be (using my example) better than losing six properties.

And, just to make this point, note that this segregation of assets into different LLCs isn’t applicable only to real estate investors. A business owner might also segregate assets into different LLCs. A restaurant owner with three locations might put each location into its own limited liability company. A business might group product lines, business units or even customer groups into different LLCs.

Protecting Against External Business and Investment Risks

One remaining asset protection technique provided by a limited liability company should be mentioned.

In a worst-case scenario, a personal creditor or personal lawsuit can seize or gain ownership of property you own. Such property might include the assets of a business or real estate. And such property might even include a small business you own or the stock you own in a small business you operate as a corporation.

Note: Often state debtor protection laws and federal bankruptcy laws mean that some of your personal assets are protected. Retirement accounts, life insurance, a modest amount of home equity, and your work tools are probably protected, for example.

In many states, however, an ownership interest in a limited liability company often can’t be seized or transferred. Often, the best a creditor can do, for example, may be to get a “charging order” from a court. A charging order simply (and only) says any payments which should go from the LLC to the LLC owner should instead go to, say, the creditor. The “charging order” protection isn’t perfect. But “charging order” protection does mean that you improve your negotiating position in any worst case scenario situation.

Neither the court nor the creditor with a charging can interfere with the operation of the LLC, for example. The court can’t, for example, force the LLC to make payments to the LLC owner.

What this all means is that by owning assets or a small business through a limited liability company, you reduce the possibility that some external, personal event will foul up the stuff going on inside the limited liability company.

About the author:

Seattle tax accountant Stephen L. Nelson is the author of two ebooks about Nevada incorporation: Incorporating in Nevada and Forming a Nevada Limited Liability Company. Nelson is also the author of the small business best-seller QuickBooks for Dummies.

It seems that in times of an economic downturn scam artists come out of the woodwork trying to profit from schemes that look to help out those that are troubled. This economic downturn currently being experienced is no different. Here are some scams to watch out for:
 
Playing off government programs: Congress has recently passes many grants and relief acts to help out Americans and scam artists are trying to profit from it. If someone (or a company) is trying to get you to pay an up front fee to apply for the grant or relief act then it is probably a scam. Government programs designed to aid those in need do not require an application or up front fee.
 
Credit repair: There is no instant way to repair your credit. It takes paying your bills on time and other practices outlined in our blog (LINK TO PREVIOUS BLOG). If someone is promising to fix your credit quickly, it is probably a scam.
 
Cashing in your gold: You may have seen the TV commercial about sending in your unwanted gold items, such as jewelry, to a company to have cash sent back to you. Be very careful with the fine print. These companies often use time against you by taking a long time to process the gold and return check to you. Once you receive the check, which is typically for much less than the gold is really worth, the return period for your gold has lapsed.
 
Paying up front: Any program that promises to make you money quickly, but requires you to send money to them in an irrevocable form (such as money order or wire transfer) is probably illegitimate.
 
Paying attention to the old adage: “If its too good to be true, it probably is” will take you a long way in protecting yourself from a scam.

This is a new program scheduled to roll out around July 24 designed to make leasing or purchasing a new car more affordable for those with an older model car.

Here are the requirements:

·         Your vehicle must be less than 25 years old on the trade-in date and have a dealer trade in value of less than $4,500.  

·         Only purchase or lease of new vehicles qualify

·         Generally, trade-in vehicles must get 18 or less MPG (some very large pick-up trucks and cargo vans have different requirements)

·         Trade-in vehicles must be registered and insured continuously for the full year preceding the trade-in

·         You don’t need a voucher, dealers will apply a credit at purchase

·         Program runs through Nov 1, 2009 or when the funds are exhausted, whichever comes first.

·         The program requires the scrapping of your eligible trade-in vehicle, and that the dealer disclose to you an estimate of the scrap value of your trade-in. The scrap value, however minimal, will be in addition to the rebate, and not in place of the rebate.

·         You may trade in a domestic or foreign vehicle.

If you qualify to participate in the cars program, you need to go to a participating dealer where the following will be verified:

·         The trade-in car is in drivable condition

·         You are the registered owner, and have been for at least the last year (you will need proof of registration which the DMV can provide)

·         The car has been continuously insured for the last year (you will need proof your car has been insured)

·         The car is titled in your name and has been for the last year (you can not have a loan on the vehicle)

·         You have not previously participated in the CARS program

You get $3,500 if you qualify for the above stipulations and $4,500 if you qualify for the above stipulations AND your new car gets 10 MPG better mileage than your clunker.

Frequently Asked Questions

 To see if your car qualifies check the NADA website.

Source: www.cars.gov

by: Robin Shea

A Reverse Mortgage is a way take out some of the equity that is in your home, which is usually one of the biggest investments families have. Typically, a reverse mortgage is used to supplement the income of older Americans when Social Security income is not sufficient or expensive items arise.

Requirements to participate in a reverse mortgage are be a homeowner 62 years of age or older, own your home outright (or have a low mortgage balance that can be paid off at closing with proceeds from the reverse loan) and you must live in the home.

Those who have a reverse mortgage on their home receive monthly payments based on current interest rates, the homeowner’s age, and the value of their home. You can never be forced out of your home even when the payout amount goes to zero as long as your insurance and taxes are current.

In your estate distribution process the money paid out to you is returned to the lender and your heirs receive the balance.

For more information on reverse mortgages: http://www.aarp.org/money/personal/articles/revmortfactsheet.html

By: Stephen L. Nelson

Starting a business requires capital. Money you use for inventory, fixtures, equipment and the other stuff required to operate a firm. You can find this money in all sorts of places, but one of the places you can sometimes look is inside your individual retirement accounts, or IRAs. Unfortunately, you do need to tap an IRA with care in order to minimize any tax consequences. But here are five tips about how to do just that:

Tip #1 for Using IRA Money to Start a Business: Net the Withdrawal with a Deduction

Here’s a first tip for using IRA money to start a business. If your new business will in the beginning lose money, you can largely offset the taxes owed on the IRA withdrawal by netting your withdrawal with the business deductions you get from spending the money. For example, if you withdraw $10,000 from an IRA and then spend this $10,000 on business expenses, you won’t owe income taxes once you net the withdrawal and the deduction.

Note: If you haven’t yet reached age 59 and a half, you will still owe a 10% withdrawal penalty unless you qualify for one of the penalty exceptions such as for disability, qualified medical expenses, and so forth.

Tip #2 for Using IRA Money to Start a Business: Borrow and Repay the IRA

Another way to use IRA money–and penalty free–is by borrowing your IRA money for just sixty days. For example, if you borrow $10,000 from your IRA on day 1 and then replace the $10,000 IRA on day 60 (by depositing the funds into another IRA account), you won’t owe income taxes or penalties on the withdrawal. Two quick cautions about this technique, however: First, you must meet the 60-day deadline. The IRS is very unforgiving in this area. A second caution: If you withdraw $10,000 from your IRA, you typically won’t get the full $10,000 because some of the withdrawal will be held as a tax deposit. For example, you might get $8,000 and the remaining $2,000 may be withheld for income taxes. However, you will need to re-deposit the full $10,000.

Using an IRA for 60-day, interest-free loans means, then, that you need to have enough extra cash to make up for any withholding the IRA custodian takes out of your withdrawal. You will eventually get any amount “held back” for taxes when you file your federal or state income tax return.

Tip #3 for Using IRA Money to Start a Business: Do Tip #2 Several Times in a Row

The IRS was recently asked whether, in effect, someone could do a series of 60-day interest-free loans with their IRAs. The answer was “yes” as long as the rules were precisely followed. What’s neat about a series of 60-day withdrawals is that in combination the withdrawals allow the taxpayer to stretch out the repayment period. For example, if a taxpayer takes a $120,000 IRA and splits the IRA into twelve smaller $10,000 IRAs, the taxpayer can borrow $10,000 from his or her collective IRA accounts for a year without much trouble.

Here’s how. On day 1, the taxpayer draws $10,000 from IRA #1. On day 60, he draws $10,000 from IRA #2 but uses those funds to re-deposit $10,000 into IRA #1. Note that technically the $10,000 taken out of IRA #1 has been replaced within 60 days. On day 120, he $10,000 from IRA #3 but uses those funds to re-deposit $10,000 into IRA #2. And so the “borrowing” continues. If you want to consider this, please confer with a local tax practitioner to make sure you get the mechanics just right. As noted, the IRS will allow you to play this game. But you must follow the rules precisely.

Tip #4 for Using IRA Money to Start a Business: Self-directed IRA Investments

A quick point: In some circumstances you can use the money inside an IRA to invest in non-traditional, self-directed investments. For example, you can invest in real estate through your individual retirement account. If you want to invest in real estate through your IRA, find an IRA custodian, or trustee, who allows for direct real estate investment. You can do this by Googling or Yahooing on a phrase like “real estate investment inside an IRA.”

Caution: If you invest in real estate through an individual retirement account and you use both IRA money and mortgages to buy the real estate, your IRA needs to file a tax return. Furthermore, at some point in the future, the IRA will actually owe income taxes on its real estate investment profits because of something called the unrelated business income tax. Confer with your tax advisor if you have questions about this.

Tip #5 for Using IRA Money to Start a Business: Just Do It

You obviously want to be careful about mucking up your retirement years by risking IRA money in an entrepreneurial venture. But that caution made, if a small business opportunity is good enough, a withdrawal may still make sense in spite of the penalty and taxes. For example, suppose you withdraw $150,000 from an IRA where the money earns annual earns 10%, or $15,000.

If you pay a $15,000 early withdrawal penalty on the money and then pay another $45,000 in income taxes, you have only $90,000 left over to invest in a business. But if that $90,000 generates, say, 40% a year in profits, or $36,000 annually, you may come out way ahead even if you do pay the penalties and taxes.

About the author:
Seattle tax accountant Stephen L. Nelson is the author of two ebooks about Nevada incorporation: Incorporating in Nevada and Forming a Nevada Limited Liability Company. Nelson is also the author of the small business best-seller QuickBooks for Dummies.