Traditionally, banks have lent up to 80% of the value on commercial real estate, especially where the historical cash flow from the property was sufficient to cover debt service and operating expenses. Of course, the borrower’s credit score always impacted this decision, and typically a score above 650 was required. Today, it is a very different world. Even if a borrower has a credit score above 720, (considered excellent), many are finding it very difficult to obtain conventional financing (if not impossible). Banks are requiring much more in terms of down payments, much higher credit scores, personal long term relationship with the borrower, historical data as it relates to rent rolls on commercial property, heavy documentation for proving income and net worth, multiple appraisals (lenders cannot even communicate directly with the appraiser anymore), yearly updated performance information to make sure the property is continuing to perform strong, and it is critically important for a project to have a competitive edge and stand out among the mass quantity of real estate available.. This is the new norm when it comes to obtaining financing for commercial real estate.

Therefore, it is important to explore alternatives. Alternative financing typically comes from:

(1) Owner financing;
(2) private hard money lenders;
(3) private equity investors and/or
(4) SBA loan programs offered through The American Recovery and Reinvestment Act of 2009 (signed into law by President Obama on February 17, 2009.)

We will examine the pros, cons and pitfalls of each of these strategies. However, since taxes, real estate and financing go hand in hand, a brief discussion of tax based incentives is necessary because the new norm is that the tax benefits may be the edge needed for a real estate project to attract investors.

TAX BASED INCENTIVES:

Low-Income Housing Tax Credit

For developers of multi family low income housing, the low income housing tax credit has been of great assistance. However, since the introduction of the passive loss rules from Tax reform Act of 1986, these credits are typically used by corporations to offset the entity’s taxes dollar for dollar. These state awarded credits can be of great assistance for a developer to attract private equity investors to fund their projects. Typically, the private equity investors are given these credits as an additional incentive to invest in a particular project. The highlights of how this credit works are below:
1. This federal tax credit, in general equal, is equal to about 9% of the qualified cost and improvements of the property per year for 10 years;
2. Development capital is raised by “syndicating” the credit to an investor or group of investors;
3. A developer will typically propose a project to a state agency, seek and win a competitive allocation of tax credits, certify the project cost, and rent-up the project to low income tenants;
4. The credit will be based on (i) the amount of credits awarded to the project in the competition, (ii) the actual cost of the project, (iii) the tax credit rate announced by the IRS and (iv) the percentage of the project’s units that are rented to low income tenants;
5. Simultaneously, an investor will be found that will make a capital contribution to the partnership in exchange for a percentage ownership in the project and an agreed upon allocation of the credits over a 10 year period. The investor will either fund a portion or all of the financing needed. If it’s a portion, the investor’s contribution of equity and borrowing strength can greatly enhance the chances of a particular project obtaining conventional financing.

There are additional detailed rules that describe the lengthy application process, program administration, terms & conditions, eligible basis, credit limitations, compliance, and what qualifies as low income housing. This goes beyond the scope of this discussion.

Empowerment Zone & Renewal Community Employment

Wages paid to employees working in selected geographic areas qualify for this credit. The IRS lists each year in their Form 8844 which areas are Empowerment Zones and which areas are renewal Communities. The Empowerment Zone credit is 20% of wages up to $15,000 and the Renewal Community credit is 15% of wages up to $10,000. If real estate is developed in any of these areas, you can use these credits to enhance your return by lowering dollar for dollar your Federal taxes accordingly. You can find out if your specific location is within one of these zones by calling 1-800-998-9999 or using the address locator at http://www.hud.gov/cr/locator.

Commercial Revitalization Deductions for Investors, Developers and Business Owners

As an investor, developer or business owner specializing in redeveloping in abandoned and underutilized buildings or new construction in Renewal Communities (which you can check with your local county to determine where the Renewal Communities are located), you are eligible for special federal tax deductions called Commercial Revitalization Deductions (CRD).

The CRD is a federal tax incentive that is deducted from a business’ income before calculating federal income tax liability. With a CRD, you can deduct a portion of the costs of acquisition and substantial rehabilitation over a shorter period than permitted under standard depreciation rules. Specifically, this competitive tax deduction allows you to EITHER deduct half of your eligible building expenses during the year that the building is placed in service or prorate the same expenses over a ten-year period.

Additionally, if a business holds a Renewal Community Business asset acquired after December 31, 2001 and before January 1, 2010 for a minimum of 5 years, the business does not have to include any “qualified capital gain” from the asset’s sale or exchange in its gross income. This exclusion applies only to an interest in, or property of, certain businesses operating in a Renewal Community (RC). The following qualify as RC assets: RC business stock, RC partnership interests, RC business properties. Only gain attributable to the period from January 1, 2002 through December 31, 2014 may be excluded for RCs.
There is a lengthy application to qualify and each application is scored based on various criteria beyond the scope of this discussion. For more information, go to http://www.cdconline.org/rccommercialdeduct.htm. Again, these tax incentives are very effective for raising capital from private equity investors.

Cost Segregation Study

If you have built or renovated a building in the past 10 years, cost segregation is a tax savings strategy that can improve the economic health of your bottom line by accelerating the manner in which you recover the investments in your building. Property they may be classified as 27.5 year or 39 year property (meaning it has to be depreciated over this long useful life) could be reclassified to 5, 7 or 15 year property through these studies. These studies need to be performed by qualified CPAs and engineers to meet stringent IRS guidelines, but can be well worth the money. This enhanced depreciation deduction can be very attractive to investors to help fund your project.

Energy Efficient Commercial “Green” Tax Deduction

Have you built an energy efficient-building or upgraded your HVAC or lighting system to reduce energy consumption? If so, you may qualify for a tax deduction of $.60 to $1.80 per square foot off the cost. Again, this study should be performed by a qualified CPA firm that specializes in this area and typically is done simultaneously with a Cost Segregation Study. The property must be certified by an unrelated qualified and licensed engineer or contractor which the CPA firm can coordinate. Taxpayers must retain these certifications in their tax records.

Energy-Efficient Home Builders Credit

Contractors that build new energy-efficient homes in the U.S. may claim a tax credit of $2,000 per dwelling unit for homes sold after 2005 and before 2010. The IRS has issued guidance on the certification process tat builders must complete to qualify for the credit.

ALTERNATIVE FINANCING:

SBA Loan Programs offered through The American Recovery and Reinvestment Act of 209 (signed into law by President Obama on February 17, 2009).

There are two new key provisions in the Act that are geared towards helping small business owners: (1) Temporarily raising guarantees up to 90 percent through calendar year 2009 or until the funds are exhausted and (2) temporarily eliminating fees for both borrowers and lenders through 2009 or until the funds are exhausted. However, what isn’t always discussed is that these loans are still very difficult to get. One must typically go through their bank, or credit union to apply for these loans and according to the SBA, these loans is meant to assist borrowers who are unable to obtain financing on the same terms through normal lending channels. Therefore, the borrower must first apply for a loan and go through a normal underwriting process. Once declined, the lender will then explore the SBA loan. If the SBA makes the loan, they are in essence guaranteeing the bank on the loan if you default. Therefore, you need to be very prepared to go through a rigorous loan application process that in many cases is tougher with the SBA then a conventional bank loan. It is true the SBA will approve folks with a lower credit score then a conventional bank loan, but none of the other underwriting standards are relaxed. Your tax returns, books and records, detailed financial and verbal description of your project, detailed architect drawings, and an incredibly strong property will be required to get the SBA to approve your loan. Perhaps the most surprising part of applying for an SBA loan is when you here that you’re not strong enough to qualify for their unsecured loan guarantee and that you need real estate to obtain the loan. In other words, my experience with the SBA loan programs is that unless you have strong real estate to secure the SBA loan, your chances of obtaining the loan drop considerably.

Owner Financing

Sellers are realizing more and more that they can’t sell their properties because banks aren’t lending to buyers. Therefore, for buyers, this is an advantage. Don’t be afraid to ask a seller for owner financing. Make them an offer, in writing and request owner financing with rate and terms similar to conventional banks. A savvy seller will certainly want a significant down payment (at least 20%) and likely still request to pull your credit. However, many of the other normal underwriting processes you will have to go through for a normal bank loan may not be required. Also, don’t be afraid to explain to the seller the advantages they have by making you a loan. For example, the seller will not have to recognize all the gain on the sale of their property in one year. Under the installment sale rules, when a seller provides owner financing, they defer the gain for tax purposes and recognize only a portion each year in relation to the payments they receive from you. Additionally, this creates a nice income stream for the seller and in the event of a default; they keep your down payment and can resell their property after a successful foreclosure. Remember, banks made a fortune for many years by providing loans and a seller knows their loan is very secure because after all it’s their property that is securing the loan. Owner financing is and will for the foreseeable future be the norm for financial commercial real estate deals.

Private Equity Investors

Over the past few years, private investors have been spooked. They have been scammed by fraudulent appraisers, by over valued properties, and by the general down turn in the economy. This recession didn’t spare any investment category. Real estate, stocks, bonds and commodities all took a major hit. Therefore, it is very difficult to find private investors with an appetite for real estate unless they are getting an absolute amazing deal. This means they must be convinced that they are buying a property for pennies on the dollar, and that the yearly cash flow is tremendous. Also, they will want to know that your deal stands way above the rest. The tax incentives mentioned above may be the edge you need to get private investors to fund your deal. Be prepared to be underwritten by private investors every bit as hard as banks. Also, be prepared to give up legal control of your deal. Today, the norm has become that the money partner wants to know they control the shots. The days of trusting the developer partner to do all they promised and the equity partner puts all the skin in the game for only a small fraction of the deal are gone. Also, they will want to see you put skin in the game meaning you will have to come up with part of the cash. It’s not good enough anymore to only contribute your sweat equity. Those days are gone. Investors know that cash is king and without them, deals won’t get done. So explore this option very cautiously as your equity partner will likely be controlling your deal.

Private Hard Money Lenders

Hard money lending typically is thought to be a means of last resort. Interest rates will usually be 3% to 5% higher then conventional mortgages, and closing points will be 5% to 10%. These types of lenders are still lending but they are heavily scrutinizing the loan to values. They focus less on the financial strength of the borrower and more on the strength of the property. It used to be that hard money lenders would lend 70% or less of the value of the property. That is no longer the norm. The new norm is 60% or less of the value of the property, and they will not solely rely on an appraiser’s determination of value. Rest assured that if the purchase price of the property is less then the appraised value, the appraised value will be ignored. Also, they will no longer attribute value for a planned re-zoning. If you’re zoning and permits are not already in place, the property will be valued for its current zoning and use. Potential uses are a thing of the past. Although this alternative may seem inferior to using private equity investors, this is not necessarily true. One must evaluate the price of each because these days, the norm for private equity investors is to take a large chunk of the equity in you project (usually the investor will not want control, which means owing 51% or more of your project). Alternatively, a hard money lender will charge high interest rates and closing costs, but this is usually far less then 51% of the equity in your project. Typically, you will be giving up 10% to 15% of your project by using a hard money lender. If you believe your property will be strong and performing well in a relative short period of time (1 to 3 years), this could allow you to obtain conventional financing and payoff the expensive hard money loan. Therefore, this alternative may be far less expensive then using private equity investors.

Good Books & Records is Key (QuickBooks)

You must have absolute perfect books, records and documentation. All tax reruns must be filed accurately and will need to demonstrate that you and your property have the ability to cover the debt, taxes, insurance and operating expenses of a property. Also, this will make your life much easier come tax time. QuickBooks is an easy and cost effective solution to maintaining accurate books and records for your project. Consider engaging a CPA to help you properly set up your books and records, particularly as it relates to segregating the cost and improvements of your project between the various classes of property the IRS has identified. Furniture, fixtures and equipment for example can be depreciated over a 5 or 7 year period, while building costs or improvements have a much longer useful life of 15, 27.5 or 39 years. Also when you sell, abandoned or retire assets from your project, you want to be able to easily identify which assets to write off. The days of no documentation loans from banks, private investors and even hard money lenders are long gone. The new norm is to have crystal clean, detailed and accurate books and records both for the purpose of obtaining a loan and maintaining a loan. You will be asked for yearly (at a minimum) detailed accounting records on your project.

Entity Types

It is important to set up the right type of entity for owning your property. There are many legal forms in which a property can be owned. You can own it in your name directly (not recommended especially for liability purposes), own in an LLC, and S-Corporation, a regular corporation, a partnership, or as tenants in common. Each has very different tax consequences associated with the form of ownership. Consultation with an attorney and an accountant for further advice is highly recommended. But the new norm is that your form of ownership must maintain its own books and records and co-mingling of funds between the entity owning the real estate and your personal funds can have detrimental legal and tax ramifications.

Passive Loss Rule Considerations (Real Estate Professionals versus Non-Real Estate Professionals)

There are a complex set of rules that were introduced with The Tax reform Act of 1986 which in essence limits the amount of yearly loss a non-real estate professional can use. Real estate professionals, however, can utilize all of losses generated from a property for tax purposes. The rules and IRS scrutiny on who qualifies as a real estate professional are complex. Again, essential you consult with an attorney or CPA to assure you’re classifying yourself correctly and otherwise complying with the passive activity loss rules. The IRS is scrutinizing real estate losses very carefully these days due to the downturn. The new norm is expect to be audited and therefore maintain your books, records, and take tax positions in a manner that you can fully support to an IRS agent. Believe me, they won’t just take your word for a deduction or position you may have taken on your return. Proof of everything is the new norm.

The new norm has made thinking out of the box critically important. The days of stated income, no doc loans are long gone and may never return. Be prepared to have accurate detailed records for everything. Be prepared to go through very long underwriting processes. Be prepared to be rejected. However, the right projects with the right competitive edge can still find financing alternatives as described above. The new norm is that your monthly rent should be at least equal to 1.5% of the total cost of your project, including acquisition costs and all improvements.

1. Is excellent to good credit or a steady paycheck from a company more likely to sway a bank to give a mortgage?

Good credit is essential these days to get a loan. Also, the standards on what is considered good credit have become harsher. In summary, you need to have a credit FICO score of 720 or above to be considered “good credit”. Excellent credit is 750 or above for most lenders. This will also impact your rate. The better your credit rating, the better rate you will get. Also, banks like to see a W-2 and regular paychecks. Employment consistancy (length of time you have had steady employment, particularly at one job) is very important and proof of this is required. The days of what was known as “no doc stated income” loans are gone. This means tax returns, W-2s and copies of recent paychecks will be required for proof of employment and verification of income.

2. What items should a self employed person have available before applying for a loan?

Tax returns, and the last 12 months of bank statements showing deposits from self employment are critically important to prove income. The more documentation you provide to prove your income from self-employment, the better. Underwriters will no longer rely on just your word of what the income is. They will require that you provide tax returns and sign an IRS Form 4506 authorizing the lender to obtain a copy of your tax return directly from the IRS.

3. Is there a percentage down that makes the whole process much easier? (20% 25%, etc.)

20% down certainly makes the lenders much more comfortable that someone will not default because they lose too much deposit. It also enables the lender to more easily approve a borrower because loan to value ratios they may have in place are met. This is especially important where property appraisals may come in less then expected. Many areas of the country are still considered to be in depreciating real estate markets so the more down payment; the more comfortable a lender will be to make you a loan. On an investment property (a property not used as a primary or secondary residence) 20% is the minimum that will be required as a down payment. For certain first time homebuyers, FHA loans may still allow up to 96.5% financing. Otherwise, for purchase of residences, expect a 10% down payment requirement.

4. Which types of mortgages are easier to obtain?

Primary or secondary residential loans are much easier then investment or commercial loans. There have been so many foreclosures on investment properties that banks are reluctant to make these types of loans unless you have a very solid relationship with that bank (meaning you have significant deposits at the bank and have a long tract record of being a good borrower with that bank) you likely will not qualify for an investment real estate loan. Also, the rates for investment and commercial loans are significantly higher usually at least 2 percentage points higher then a residential loan). Also, the lender will absolutely require proof of the cash flow that can be generated from the investment property to make sure it will cover the payments on their loan, inclusive of taxes and insurance on that particular collateralized property.

5. Is owner financing a better option for them to pursue? (I assume higher interest rates and balloon mortgages can be a problem?)

Many people are offering owner financing today to sell their investment properties. This is because very few banks are willing to make investment related loans at this time. It used to be that owner financing was traditionally higher then conventional bank financing. However, sellers today must make their financing as attractive as banks in order to sell their properties.

6. Any additional hints that will help a self-employed individual who is trying to get a mortgage?

(Part time job with a salary and pay stubs, etc?)

The more net income you show on your tax return, the better chances of qualifying. However, it’s a catch 22 because this means you will be paying more tax. Typically, self employed individuals are paying themselves directly out of their business, and may also be paying their spouses. Therefore, consider paying yourself directly from your own business as an employee and treat yourself and your spouse as employees. This way you can provide real pay stubs and W-2s which makes it easier to qualify for a loan. Also, make it easy for the underwriter to see that certain items you may be expensing out of your business are really for your benefit. For example, the business may pay for your auto mileage, or cell phone. Point this out to the underwriter and they may include that back for you as additional income helping you to qualify. Also, make sure the underwriter adds back depreciation expense deducted in your own business. This is just a paper tax write off and should be added back to determine the real net cash flow the business provided to you.

7. Sometimes email interviews are a bit challenging because it is tough to adjust questions to cover new information. Is there anything you wish I would have asked?

Overall, the rules for getting a loan are back to where they were 10 years ago. Strong personal relationships with a bank now matter a great deal. Credit scores in the 720 plus range are critical. Most important is documentation. You must keep excellent records and be able to prove your income. The days of “no doc stated loans” are long gone. Also, don’t invest in real estate just because prices are way down. It’s a very tough investment to manage and requires lots of time and money. In other words, it’s not a get rich quick investment. Real estate will take many years to come back to the levels it got to. Typically, expect real estate to appreciate at about the rate of inflation. On my blog at www.woodysgoodies.info, I have a piece I wrote called “Basic Rules on Buying Real Estate Are Good (Learning From My Mistakes is Also Good)”. I highly recommend anyone new to buying investment real estate read this before diving in.

1) Why is it worthwhile to check out foreclosed properties for sale?

It is worthwhile to check out foreclosed properties because: (1)
amazing deals can be achieved as banks are very willing to negotiate
and anxious to get these off their balance sheets; (2) if purchased
for a great deal, (a quick and dirty calculation of a great deal is
take 2% of the purchase price and this should be the minimum of what
you can rent the property for), a hefty positive monthly cash flow can
be achieved by renting the property; and (3) it helps the economy by
having the enormous amount of excess inventory absorbed by savvy
Investors.

2) What are the risks of purchasing a foreclosed property right now?

The risks of purchasing a foreclosed property right now is that there
potentially could be many more coming on the market. Therefore, you
need to be prepared to hold this property for at least 3 to 5 years,
and have enough cash reserve to support the property for 12 months
even if it can’t be rented during this time.

3) Why is it important to have a foreclosed property thoroughly inspected by
a professional prior to purchasing?

Many foreclosed properties have been neglected and sitting for a long
time. This means that regular maintenance and repairs has likely not
been performed, and unfortunately, theft and vandalism particular as
it relates to air conditioner coils and copper wiring is prevalent.
Additionally, the normal disclosures required by a seller of a
residential home are not required to be made by the bank. Therefore,
a professional inspection is a must before you finalize the purchase
of any foreclosed property.

4) What type of professional inspector is best to hire? Any
tips/suggestions?

An inspector should be a member of one or more real estate inspector
associations. For example, there is the National Association of Home
Inspectors, Inc. (NAHI) or the National Association of Real-Estate
Inspection & Evaluation Services (NARIES). Also, at least 3 referrals
should be supplied by the inspector and the inspector should be a
specialists in the type of real estate being inspected (I.e.
residential, commercial retail, commercial office, etc.)

5) What should the inspector be looking for in the foreclosed property?

First and foremost, an inspector should be looking for things that
can’t be seen by the non-professional eye. For example, structural
issues, electrical issues, mold or mildew, is the roof in good shape,
is their asbestos, is the stucco the fake kind that was subject to
recall due to defects, is the siding the kind subject to re-call due
to defects? In other words, the inspector is looking for things that
a novice couldn’t easily find themselves.

6) What are the major warning signs/red flags that should tell you not to
purchase this property?

If you are buying in a neighborhood where almost every house is
vacant, this is a bad sign unless you are prepared to buy almost every
house in that neighborhood. Otherwise, you will be one of many and
people don’t like to rent in vacant neighborhoods. The other
foreclosed vacant homes could be sitting for a very long time and this
could continue to deteriorate the value of your home. Also, you
should not buy in an area that you can’t get to within one-hour.
Trust me from my own experience, you wont properly maintain your
property if you can’t get there within one hour.

7) What are the important factors to realize before bidding on or making an
offer on a foreclosed home?

The three most important factors are: (1) Knowing the total cost it
will take you to get the property back to rentable or sellable shape;
(2) Knowing what the other comparable homes are selling for within a
1/2 mile area from the home your buying and (3) making absolutely sure
you can afford to fix the house up, maintain the house, and hold the
house even if it doesn’t rent for at least 12 months.

8) Any tips on how to use the results of the home inspection to your
advantage as a bidder or potential purchaser of a foreclosed property,
especially in this buyer’s market?

It is critical that the seller is made aware of the results of your
professional home inspection. The key to using this effectively for
getting a better price is your willingness to walk from the deal. You
MUST NOT GET EMOTIONALLY TIED to any one property. There are lots to
choose from, and I am afraid there will be for a while. If you’re
willing to walk from a deal unless you get your price, then you will
likely get your price.

9) Any other thoughts, tips, suggestions on this topic?

 Buying and
managing real estate is not for the faint of heart.
It’s hard work and very hands on. It is also an illiquid investment.
Go into this with your eyes wide open and make sure you have the time
And resources available to work this type of investment. On my blog
At woodysgoodies.info, I have an article I wrote called ” Basic
Rules on Buying Real Estate Are Good (Learning From my Mistakes is
Also Good)” (click here to read). I strongly recommend this be read before you make your
first purchase.

It’s frightening to think of what could happen if your credit card is stolen. You may not realize it’s gone right away, and by the time you do, someone could have charged thousands of dollars in your name. And what if someone were to get your credit card number without your knowledge? By the time you receive your statement and catch on, the damage is already done.

Fortunately, the Fair Credit Billing Act (FCBA) protects cardholders from charges made when their credit cards are stolen. But it is important to understand the law in order to make it work for you. There are certain things you must do in order to take advantage of the protection the FCBA offers.

The FCBA is designed to cover cardholders who experience billing errors. In some cases, these errors may be the fault of the credit card company or a store from which you made a purchase. But unauthorized charges, including those made by someone who fraudulently obtained your credit card or account number, are also covered by the law.

According to the FCBA, a cardholder may not be held responsible for more than $50 in unauthorized charges if the creditor is notified of such charges in writing within 60 days after the first bill showing the error was mailed. That means that as long as you check each statement for errors and notify the credit card company in writing as soon as you catch them, you can’t legally be required to pay more than the first $50. The key here is that the communication must be written in order for the cardholder to be protected by law.

If you realize that your card is missing, it is best to notify the issuer by phone right away. Most credit card companies have a 24-hour toll-free number for reporting missing or stolen cards, and that number should be on your credit card statements. Once you’ve notified the creditor by phone, you should not be responsible for any charges made after the notification. And most companies will not charge you the $50 allowed by law even if charges have already been made. This is, however, at the creditor’s discretion.

Even if you do report your card stolen or missing by phone, it is important to follow up by mail within the 60-day time frame. Make a copy of the letter for yourself, and send it to the company via certified mail or with a return receipt request. This will give you proof that you provided proper notification should you ever need it.

Losing a credit card is a harrowing experience. But it’s reassuring to know that you are protected from unauthorized charges by law. As long as you notify the card issuer quickly, a misused card shouldn’t leave you with a mountain of debt.

Unless you’ve just moved into a brand new house, home improvement is a never-ending job. When one project is complete, we always find something else that needs work. The improvements add value to our homes, but they come with a hefty price tag.

Many homeowners feel that they must have a professional come in for each job. But if you’re willing to roll up your sleeves and get your hands dirty, you can make many improvements on your own. And since you won’t have to pay for labor, you could save hundreds to thousands of dollars on each project.

Here are some common home improvements that we can often do ourselves.

1. Painting – You don’t have to be an artist to paint the inside or outside of a house. With the right materials, just about anyone can do it. If you have no idea where to start, enlist the help of a friend or family member who has painted his own home. And if you’re really apprehensive, start with one wall to prove to yourself that you can do it.

2. Wallpapering – Wallpapering isn’t as simple as pasting paper onto the wall, but it’s not terribly difficult, either. You’ll need to prepare the wall, do some measuring and cutting and carefully paste it on so that is even and free of bubbles. It takes some time and patience, but the end result is well worth it.

3. Air conditioning – Installing an air conditioner is easy enough that most homeowners do not need outside assistance. If you buy the right size, it will fit right into an existing window. All you’ll need to do is install some brackets, slide the unit in, make sure that it can drain to the outside of your house and caulk around it.

4. Flooring – There are many types of flooring available, and some are easier to install than others. Stick-on tile is cheap and can give a room a new look in no time, but it’s not very durable. Other types of tile are more durable but take longer to install. Carpeting and hardwood flooring are a bit more complicated. Laminate is a popular choice, because it offers the look of hardwood but is easier to install and care for.

5. Insulation – A properly insulated home offers greater energy efficiency. While insulation of exterior walls is best left to a qualified contractor, homeowners can often successfully insulate attics and crawl spaces on their own. DIY books and websites offer advice on how to properly install insulation.

6. Water heaters – If your water heater has seen better days, you can probably replace it yourself. With the instruction manual and a few tools, installing a water heater is a cinch. Consider an energy-efficient model and save on your electric bill.

7. Plumbing – Plumbers have to go to school to become certified, but there are some simple plumbing tasks that the average Joe can handle. These include installing faucets, taking drain pipes apart to retrieve lost items, and installing toilet kits.

8. Accents – Small details can make a big difference in your home, and you can usually implement them with little guidance. Try changing your cabinet knobs, adding baseboards or changing your crown molding.

9. Siding – Replacing your home’s siding can give it a whole new look. Vinyl siding is easy to install with the right tools, and it’s very easy to maintain.

10. Decks – Building a deck is no small task. But if you know a little about construction, you can do it on your own. You will, however, need a building permit, and you’ll have to adhere to building codes.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com

Disability insurance is an income replacement insurance policy which is dispensed to you if you are injured or too ill to return to work. It’s the only insurance available which keeps all other assets protected. Without insuring your income, any investments and/or insurance you have been contributing to for possibly many years will no longer have a source of funding for their upkeep. There is potentially a risk you could lose not only your home, but your car, insurance plans and any ability to plan or fund your retirement.

From accumulating assets to long-term financial plans, you have worked hard as you have gone through life. Have you given any thought to how you are going to keep these assets as well as your long-term plans if your income source is no more? Any disability programs offered from the government don’t necessarily get awarded to everyone in the event of disability. With strict requirements, averages of one third of all cases are approved. With the ability to structure, your disability insurance covers either partial or total disabilities for either short or long term. It’s essential to make sure you have the right coverage just in case.

Prices for disability insurance can vary greatly. Unless you have the opportunity to get insured through an employer, it could get pricey. You can estimate 1 to 3 percent of your annual income. This cost will depend on several factors, including your choice of policy, your type of employment, your health condition, and your age. Whether or not you smoke is also a factor.

If you don’t need immediate payments of your disability insurance following a disability (due to reception of workers’ compensation or employee benefits), you could save quite a bit of money on your premium by choosing to wait for reception of your disability payments.

You can choose either a traditional fixed-premium policy, or one similar to term life insurance plans. These are called annually renewable disability income policies. This type provides you with affordable options, with premiums rising in price minimally each year. With either of these plans, you determine the monthly payment in order to receive appropriate insurance – typically an amount around 60 percent of your earnings. Following this, if you become disabled, those payments will be returned to you.

When considering the purchase of a disability policy or when reviewing a current one, the main objective is to adequately cover your monthly expenses. Some individuals choose to insure their entire income, even though it may be higher than their respective expenses. This ensures there is enough money being received to cover your assets.

A good policy will always take into consideration inflation and its impact on your monthly benefit on a long-term basis. Always verify the possibility of adding an inflation rider to your policy.

There comes a time to realize that not all disabilities are equal. The majority are partial disabilities which decrease the amount of time you are able to work, but allow you to work at least part time. A perfect example of this is Multiple Sclerosis, which is a disease of many faces. Always look for a residual disability rider to ensure a partial benefit will be paid if you are partially disabled.

One way some insurance companies save money on policies is through their definition of disability. If your policy reads “any occupation” this could result in you having to return to any position, even if it’s not your own. A policy stating your “own occupation” is something you need to look for when choosing an insurance plan.

There are a wide range of questions and verifications which need to be addressed before committing to any one particular disability insurance policy. If you plan for this potential need ahead of time, you can shop around for the policy which best fits your needs, as well as your pocketbook.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com

Learning to use credit responsibly is important for every young adult. If one starts out on the right foot, he is less likely to let debt get out of control than if he starts charging everything in sight as soon as the opportunity presents itself. But at what age are credit cards appropriate?

According to credit card companies, allowing teens access to plastic is a good thing. They say that learning about credit with parental supervision gives them a better chance of managing it successfully when they’re on their own. But we all know that credit card companies have a financial stake in getting their cards into the hands of as many people as possible.

Still, there is a lot of talk about the merits of providing teenagers and college students with credit cards. Here are some arguments on both sides of the issue.

Pros

* Credit cards come in handy in an emergency. If your child’s car breaks down, for example, a credit card could be used to pay for the tow bill and repairs. And if you have a college student who is far from home, you can rest easy knowing that he has quick access to funds if needed.

* As a parent, you can provide guidance while your child is starting out with credit. You can explain how interest and fees work, set rules for credit card use, and instill the importance of paying off the balance as quickly as possible.

* Credit cards can help young people build a credit history. This will be helpful when it comes time for your child to buy a car or home.

Cons

* There’s lots of temptation to use credit irresponsibly. Kids are under pressure to have the latest fashions and hottest new gadgets. When given a credit card, they may be more likely to purchase these things even if they can’t afford them.

* In most cases, a parent must co-sign in order for a child under 18 to get a credit card. That means that Mom or Dad is also responsible for the bill. This puts the parent’s credit at risk if the card is misused.

* Running up too much debt or failing to make payments can get a young person’s credit history off to a bad start. That will make it more difficult for him to get credit when he is older.

If you choose to get your child a credit card, it’s crucial to educate him about financial matters first. Starting out with a checking account is wise, because he must keep track of his spending to avoid overdrawing. Once he gets the hang of that, a debit card is a good next step. After he learns to keep track of his debit card use, and after a long talk about proper use of credit, a credit card may be considered.

We all want the best for our children. Teaching them to handle credit successfully can help prevent financial disaster when they are adults. But whether they should have hands-on experience with a credit card depends largely on the individual child.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com

If you’ve ever been hit with an unexpected expense, you know that you need some source of funding to fall back on at all times. A savings account makes the most sense, because it gains interest. But many consumers use their credit cards as a safety net, even though they know it will cost them more in the long run.

Those who are saddled with credit card debt, either because of using them for emergencies or simply overusing them, are painfully aware of how interest and fees accumulate. They swear that when they get out of debt, they will start saving money to avoid having their finances fall back into ruin. And if they’re serious about it, they might put every spare dollar toward paying down that balance.

Paying off high-interest debts has definite advantages. Most importantly, it can save you lots of money over paying just the minimum payment each month. It also frees up your credit line so that you can use it if you have to. But is paying down credit card debt more important than building up savings?

There is some disagreement among financial experts. All agree that your bottom line is positively affected by paying as little in interest as possible. And some find that to be reason enough to put money toward paying down your balance before you try to save up. But others feel that the importance of having an emergency fund trumps the money saved in interest charges.

One argument against paying off credit cards before starting to save is that it leaves no resources to use in case of emergency except for the credit card. If you’ve paid down your balance sufficiently, you may be able to use the card if something comes up. But you’ll also experience a setback in paying it off. That means you’ll pay more in interest, and it will be longer before you can start that savings account.

By the same token, using a credit card for emergencies is one of the habits that those with debt issues need to break. Putting yourself in a position in which you have no choice but to do so is a step in the wrong direction. By saving up an emergency fund, you can avoid using credit until you’ve eliminated the debt you already had.

Choosing between paying off credit card debt and building up a financial cushion can be difficult. But if unemployment or some other major financial problem is a possibility, building up your savings is usually the best option. Putting away at least a month’s salary before you start paying off your debt will allow you to breathe easier.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com

Credit cards have gotten a bit of a bad rap. With so many people drowning in credit card debt, and with penalties and fees piling up to keep them there, it’s not too hard to understand. But that doesn’t stop us from applying for cards and using them.

Credit cards themselves are not so bad. In fact, they have many good points. They make it possible for us to buy things and use them right away, and make payments later. They keep us from having to carry large amounts of cash when we plan on making big purchases. And they provide a way to build up our credit scores. When used responsibly, they can be an asset rather than a liability.

Unfortunately, many consumers fail to maintain control of their charging habits. They use their credit cards to make impulsive purchases. They pay only the minimum payment each month, resulting in greater interest charges. They keep their cards perpetually maxed out. Or they obtain multiple cards and juggle debt instead of paying it off.

To get the most out of credit cards, it’s best to start out on the right foot. Shopping around for a card with low interest and no annual fee will help minimize costs from the get-go. And if you resist the urge to go out and buy anything and everything you want, you can avoid accumulating an overwhelming amount of debt in the first place.

Here are some tips for keeping a leash on the credit card monster:

* Pretend your credit limit is about 25% of the actual amount. This is the optimal balance for keeping your credit score at its best. It also helps keep your debt much more manageable than if you utilize your entire credit limit.

* When using your card to purchase non-necessities, pay the balance in full each month. Or at the very least, make sure you can afford to pay the purchase off within a few months and avoid charging any other “wants” until you do. Charging lots of stuff we don’t need is a trap that too many cardholders fall into. By charging only what we can afford to pay back quickly, we can avoid getting in over our heads.

* Always make more than the minimum payment. If you only pay what you’re required to pay, it could take years to pay off even a small balance. Try to put as much money as you can toward your bill each month, and you could save yourself a small fortune in interest charges.

* Avoid impulse buying. When you see something you want (or feel that you need), give yourself some time to think about it. For small purchases, a week should be sufficient. For more expensive things, give it a month. By then, the urge may pass. If it doesn’t, make sure you can afford to pay off the balance in a reasonable amount of time before you take the plunge.

* Resist the urge to use your card to pay bills, unless you are paying the balance in full each month. If you can’t afford to pay your bills without the plastic, you need to re-evaluate your budget. Charging them to your credit card will only leave you with loads of unnecessary debt.

When used improperly, credit cards can be a real nightmare. But when used responsibly, they can make our lives easier. By charging with prudence from the start, you can avoid the debt trap and maintain a good credit score.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com

Credit cards offer a number of benefits. They give us easy access to credit in emergencies. They make it easy to pay for the things we need and want. And when used responsibly, they can build up our credit. But they can also be very expensive, especially when we have to pay penalties.

Credit card companies issue penalties in various forms. These include:

* Late fees – When we’re late paying our phone bills or electric bills, the company often tacks a late fee onto our next bill. The same holds true for credit card companies. The difference is that the fees from credit card companies are usually much, much higher. It’s not unusual for them to charge late fees of up to $39.

* Overlimit fees – Most credit card providers will not allow debtors to charge purchases in excess of their credit limits. But if your card is maxed out, interest charges could push your balance over the limit. For each month your balance is over the limit, the creditor can impose an overlimit fee.

* Penalty interest – Most credit card contracts include a provision that allows the company to raise your interest rate if you are late with your payment. In most cases, interest will not be raised until you’re late twice in a 6- to 12-month period. But the default rates are often two to three times your normal interest rate.

* Universal default – A growing number of credit card companies are raising interest rates for customers who are late with payments not only to them, but to other creditors. This is called a universal default rate. Even if you pay your credit card bill on time every month, a misstep on another debt could result in a rate hike.

* NSF fees – If you make a payment and it doesn’t clear your bank, your credit card company can add a non-sufficient funds fee to your bill. This is in addition to late payment and overlimit fees that may result from the denied payment.

* Annual fees – An annual fee isn’t technically a penalty, but it is something to watch out for when you apply for a card. Some creditors charge annual fees of $50, $75 or $100 or more. There are plenty of cards out there without annual fees, so in most cases it’s best to just pass the ones that do charge them by.

Knowing the Penalties for Your Credit Cards

Credit card issuers are required to disclose all penalties and fees that are or could be charged on credit applications. They may also send a copy of this information to new cardholders. And this information should also be provided on each credit card statement. You will have to read the fine print, but creditors are required by law to provide this information.

If you incur a penalty, you may be able to get it reversed. If it’s the first time you’ve been late with a payment or a bank error has occurred, a call to the credit card company may resolve the issue. But if you habitually make late payments or exceed your credit limit, the creditor is unlikely to be helpful.

Penalties can cost you a great deal of money. Whether they’re one-time fees or interest rate increases, they can eventually add hundreds or thousands of dollars to your balance. Paying attention to these fees and making a conscious effort to avoid them will enable you to pay off your balance much sooner and allow you to keep more of your hard-earned money.

Brought To You By:
Woody Alpern
CPA/PFS
www.yourwealth.com
woody@yourwealth.com