KNOWLEDGE FINANCIAL.COM
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RICH GUIDE: WHY AREN'T YOU RICH?
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FREE FINANCIAL ADVICE. WAYS TO SAVE MONEY,
MAKE MONEY, AND GET OUT OF DEBT!
PERSONAL FINANCE. What are you doing with your
money in the wake of the financial crisis? ---
Where is the safe place to put money? My personal
finance!
FINANCIAL FREEDOM: A SMARTEST WAY TO
PREPARE A BETTER FUTURE. Money-Making
Information You'll Need to Succeed
US ECONOMY, THE FINANCIAL SYSTEM, THE
CREDIT MARKET. WHAT'S GOING?
MONEY MANAGEMENT. Ten Resolutions to Make
Your Financial Life Easier
FINANCE: THE BANKING AND THE AMERICAN
FINANCIAL SYSTEM HISTORY, SUCCESS AND
FAILURE
SAVING MONEY: THE SECRETS OF SAVING; WAYS
TO SAVE A LOT OF MONEY AND GETTING RICHER
IRA / INDIVIDUAL RETIREMENT ACCOUNT. What is
an IRA? And what does it matter?
SOCIAL SECURITY; THE ULTIMATE RETIREMENT
GUIDE. HOW DOES SOCIAL SECURITY WORK?
FINANCIAL REPORT: How to bring your spending
under control, so that you get the most out of every
dollar. 8 Reasons to get pre-qualified for a
mortgage loan!
ESTATE PLANNING: Estate planning, is it really the
process of accumulating and disposing of an
estate to maximize the goals of the estate owner to
avoid probate, to lower the tax?
Assets Protection: Don't Get Sued: Five Tips To
Protect Your Company! Types of Asset-Protection
Vehicles;
Many different strategies have been developed
over the years claiming to protect assets. How to
protect yourself from...?
BUILDING WEALTH! How to Become Wealthy?
Nine Truths That Can Set You on the Path to
Financial Freedom
FINANCIAL KNOWLEDGE: The Successful
Investment Journey, Ten Tips For The Successful
Long-Term Investor
FINANCIAL SYSTEM: AMERICA’S MONEY CRISIS /
Bailout 101.
LEARN ABOUT: Top 6 Biggest U.S. Government
Financial Bailouts In History!
2-LEARN ABOUT MARKET CRASHES HISTORY.
HOW AND WHEN?
3-LEARN ABOUT: THE UNITED STATE, AND THE
WORLD MOST IMPORTANT FINANCIAL
INSTITUTIONS!
4-LEARN ABOUT THE COMPLETE FINANCIAL
TURMOIL, THE CREDIT CRISIS!
BANKING & FINANCE / Knowledge Financial.com;
an educational, a life changing website with great
ideas of small business, with important things to
know about our economy, and investment
INVESTMENT: MAKE YOURSELF RICHER BY
INVESTING THE RIGHT WAY IN THE RIGHT
PRODUCTS. REAL ESTATE INVESTMENTS CAN
HELP
STOCK MARKET: STOCK MARKET A WAY TO
INVEST AND MULTIPLY YOUR PROFITS. THESE
INDUSTRIES HAS THOUSANDS OF COMPANIES TO
BUY STOCKS FROM.
FOREX MARKET: THE LARGEST MARKET IN THE
WORLD TO INVEST AND GET RICHER IF YOU USE
THE RIGHT TOOL.
TAX CERTIFICATES: / TAX DEED: A BETTER WAY
TO INVEST MONEY AND GET RICHER.
TAX LIENS: How Can You Safely Earn 18% to 240%
Per Year On Your Investments? Yes you can... By
investing in Government Issued Tax Liens, Tax
deed, Tax Certificates.
REITs: REIT: Real Estate Investment Trust. A
GREAT WAY TO INVEST IN REAL ESTATE WITHOUT
TAKING A MORTGAGE LOAN
COMMERCIAL INVESTMENT. COMMERCIAL REAL
ESTATE; A BETTER WAY TO INVEST AND GET
RICHER! MULTI-WAYS TO WIN BIG IN REAL
ESTATE. WHAT IS COMMERCIAL REAL ESTATE?
PENSION PLANS: THE ULTIMATE RETIREMENT
GUIDE; HOW TO RETIRE EARLY AND RETIRE
REACH. WHAT ARE 401K, ROTH 401K, INDIVIDUAL
401K, 403B, 457 PLAN, THRIFT SAVINGS PLAN.
IDENTITY THEFT: WATCH OUT, STOP IT FROM
HAPPENING, GET THE TOOLS YOU NEED TO
PREVENT IT RIGHT HERE! AT KNOWLEDGE
FINANCIAL.COM
INSURANCE 101: THE IMPORTANCE OF
INSURANCE IN SOMEONE'S LIFE.
EVERYTHING YOU NEED TO KNOW ABOUT
INSURANCE; NOW IS YOUR CHANCE TO KNOW
HOW TO SAVE MONEY ON YOUR INSURANCE!
LEARN ABOUT THE 15 INSURANCE POLICIES YOU
DON'T NEED!
MAKE MONEY, AND GET OUT OF DEBT!
PERSONAL FINANCE. What are you doing with your
money in the wake of the financial crisis? ---
Where is the safe place to put money? My personal
finance!
FINANCIAL FREEDOM: A SMARTEST WAY TO
PREPARE A BETTER FUTURE. Money-Making
Information You'll Need to Succeed
US ECONOMY, THE FINANCIAL SYSTEM, THE
CREDIT MARKET. WHAT'S GOING?
MONEY MANAGEMENT. Ten Resolutions to Make
Your Financial Life Easier
FINANCE: THE BANKING AND THE AMERICAN
FINANCIAL SYSTEM HISTORY, SUCCESS AND
FAILURE
SAVING MONEY: THE SECRETS OF SAVING; WAYS
TO SAVE A LOT OF MONEY AND GETTING RICHER
IRA / INDIVIDUAL RETIREMENT ACCOUNT. What is
an IRA? And what does it matter?
SOCIAL SECURITY; THE ULTIMATE RETIREMENT
GUIDE. HOW DOES SOCIAL SECURITY WORK?
FINANCIAL REPORT: How to bring your spending
under control, so that you get the most out of every
dollar. 8 Reasons to get pre-qualified for a
mortgage loan!
ESTATE PLANNING: Estate planning, is it really the
process of accumulating and disposing of an
estate to maximize the goals of the estate owner to
avoid probate, to lower the tax?
Assets Protection: Don't Get Sued: Five Tips To
Protect Your Company! Types of Asset-Protection
Vehicles;
Many different strategies have been developed
over the years claiming to protect assets. How to
protect yourself from...?
BUILDING WEALTH! How to Become Wealthy?
Nine Truths That Can Set You on the Path to
Financial Freedom
FINANCIAL KNOWLEDGE: The Successful
Investment Journey, Ten Tips For The Successful
Long-Term Investor
FINANCIAL SYSTEM: AMERICA’S MONEY CRISIS /
Bailout 101.
LEARN ABOUT: Top 6 Biggest U.S. Government
Financial Bailouts In History!
2-LEARN ABOUT MARKET CRASHES HISTORY.
HOW AND WHEN?
3-LEARN ABOUT: THE UNITED STATE, AND THE
WORLD MOST IMPORTANT FINANCIAL
INSTITUTIONS!
4-LEARN ABOUT THE COMPLETE FINANCIAL
TURMOIL, THE CREDIT CRISIS!
BANKING & FINANCE / Knowledge Financial.com;
an educational, a life changing website with great
ideas of small business, with important things to
know about our economy, and investment
INVESTMENT: MAKE YOURSELF RICHER BY
INVESTING THE RIGHT WAY IN THE RIGHT
PRODUCTS. REAL ESTATE INVESTMENTS CAN
HELP
STOCK MARKET: STOCK MARKET A WAY TO
INVEST AND MULTIPLY YOUR PROFITS. THESE
INDUSTRIES HAS THOUSANDS OF COMPANIES TO
BUY STOCKS FROM.
FOREX MARKET: THE LARGEST MARKET IN THE
WORLD TO INVEST AND GET RICHER IF YOU USE
THE RIGHT TOOL.
TAX CERTIFICATES: / TAX DEED: A BETTER WAY
TO INVEST MONEY AND GET RICHER.
TAX LIENS: How Can You Safely Earn 18% to 240%
Per Year On Your Investments? Yes you can... By
investing in Government Issued Tax Liens, Tax
deed, Tax Certificates.
REITs: REIT: Real Estate Investment Trust. A
GREAT WAY TO INVEST IN REAL ESTATE WITHOUT
TAKING A MORTGAGE LOAN
COMMERCIAL INVESTMENT. COMMERCIAL REAL
ESTATE; A BETTER WAY TO INVEST AND GET
RICHER! MULTI-WAYS TO WIN BIG IN REAL
ESTATE. WHAT IS COMMERCIAL REAL ESTATE?
PENSION PLANS: THE ULTIMATE RETIREMENT
GUIDE; HOW TO RETIRE EARLY AND RETIRE
REACH. WHAT ARE 401K, ROTH 401K, INDIVIDUAL
401K, 403B, 457 PLAN, THRIFT SAVINGS PLAN.
IDENTITY THEFT: WATCH OUT, STOP IT FROM
HAPPENING, GET THE TOOLS YOU NEED TO
PREVENT IT RIGHT HERE! AT KNOWLEDGE
FINANCIAL.COM
INSURANCE 101: THE IMPORTANCE OF
INSURANCE IN SOMEONE'S LIFE.
EVERYTHING YOU NEED TO KNOW ABOUT
INSURANCE; NOW IS YOUR CHANCE TO KNOW
HOW TO SAVE MONEY ON YOUR INSURANCE!
LEARN ABOUT THE 15 INSURANCE POLICIES YOU
DON'T NEED!
The world's richest man,
Warren Buffett, says it best. "I
will tell you how to become
rich. Close the doors. Be
fearful when others are
greedy. Be greedy when
others are fearful." In today's
real estate market, naive
investors are fearful. Choose
to be greedy. Choose to be
rich.
While others run from the
chaos, savvy investors are
doing what they do best.
They're "bargain hunting".
They realize that there's a
record number of troubled
homeowners who need to
sell fast to avoid foreclosure.
And they know that these
homeowners are often willing
to sell at big discounts.
Warren Buffett, says it best. "I
will tell you how to become
rich. Close the doors. Be
fearful when others are
greedy. Be greedy when
others are fearful." In today's
real estate market, naive
investors are fearful. Choose
to be greedy. Choose to be
rich.
While others run from the
chaos, savvy investors are
doing what they do best.
They're "bargain hunting".
They realize that there's a
record number of troubled
homeowners who need to
sell fast to avoid foreclosure.
And they know that these
homeowners are often willing
to sell at big discounts.
...REAL ESTATE MARKET: TODAY'S GREAT DEALS FOR
FIRST-TIME HOME-BUYERS & FOR EVERYONE AS NEVER
SEEN BEFORE! WONDERFUL OPPORTUNITY TO CREATE
TREMENDOUS AMOUNT OF WEALTH...
..RICH GUIDE, WHY AREN'T RICH?
BUILDING FINANCIAL WEALTH, OBTAIN FINANCIAL
FREEDOM, BECOME A RICH PERSON; YES YOU CAN...
..RULE OF 72: The compound interest and financial
success. Rule Of 72 is the most important and simple
rule of financial success.
..MILLIONAIRE: How To Make Your First $1 Million? The
Millionaire's Mindset
..FORTUNE: BEFORE INVESTING IN THE STOCK MARKET
LEARN THIS FIRST!...
..GOVERNMENT: Government's general information;
Local, State, and Federal.
Housing Finance Authority of Miami dade, Monroe,
Broward, and Palm Beach County
..EMPIRE: THE ABC's OF INVESTMENTS, Ways to Save.
THE TRIANGLE OF SUCCESS...
..INVESTORS: CREATIVE FINANCING:
TOP 10 CREATIVE FINANCING TECHNIQUES AND
STRATEGIES TO FIND MONEY TO INVEST!
The Five C’s of Credit: LEARN MORE..
CREATIVE FINANCE CAN AND WILL MAKE ALL THE
DIFFERENCE WHEN AN INVESTOR DECIDES TO INVEST
IN REAL ESTATE...
..HOME INSPECTION: HOW TO GET THE BEST OUT OF IT..
Top 10 home-buying mistakes to avoid!
HOW TO USE HOME INSPECTION REPORTS TO
NEGOTIATE SALE PRICE?...
...ACCOUNTING: The Basics of Accounting...
...TAXES: THE FUNDAMENTAL OF TAXES. THE MORE YOU
KNOW, THE LESS YOU PAY...
...ANALYTICS: Top 9 Real Estate Financial Calculator
Problems every investors should know about...
...REAL ESTATE MARKET: TODAY'S GREAT DEALS FOR
FIRST-TIME HOME-BUYERS & FOR EVERYONE AS NEVER
SEEN BEFORE! WONDERFUL OPPORTUNITY TO CREATE
TREMENDOUS AMOUNT OF WEALTH...
..FINANCIAL SYSTEM: THE UNITED STATES FINANCIAL
SYSTEM AND THE ENTIRE WORLD. LEARN MORE...
..MONEY MANAGEMENT: Ten Resolutions to Make Your
Financial Life, Three Ways to Put Your Budget On on Auto
Pilot Easier, 10 Ways to Avoid Overdraft and Bounced
Check Fees...
..
..SAVING MONEY: THE SECRETS TO SAVE MONEY, 66
WAYS TO SAVE MONEY, WAYS TO SAVE MONEY ON
GAS...
..FINANCE: THE BANKING AND THE AMERICAN FINANCIAL
SYSTEM HISTORY, SUCCESS AND FAILURE...
.. BANKING SYSTEM, BANKING HISTORY: FINANCIAL
KNOWLEDGE, GREAT THINGS TO KNOW ABOUT THE
AMERICAN BANKING HISTORY
...
FIRST-TIME HOME-BUYERS & FOR EVERYONE AS NEVER
SEEN BEFORE! WONDERFUL OPPORTUNITY TO CREATE
TREMENDOUS AMOUNT OF WEALTH...
..RICH GUIDE, WHY AREN'T RICH?
BUILDING FINANCIAL WEALTH, OBTAIN FINANCIAL
FREEDOM, BECOME A RICH PERSON; YES YOU CAN...
..RULE OF 72: The compound interest and financial
success. Rule Of 72 is the most important and simple
rule of financial success.
..MILLIONAIRE: How To Make Your First $1 Million? The
Millionaire's Mindset
..FORTUNE: BEFORE INVESTING IN THE STOCK MARKET
LEARN THIS FIRST!...
..GOVERNMENT: Government's general information;
Local, State, and Federal.
Housing Finance Authority of Miami dade, Monroe,
Broward, and Palm Beach County
..EMPIRE: THE ABC's OF INVESTMENTS, Ways to Save.
THE TRIANGLE OF SUCCESS...
..INVESTORS: CREATIVE FINANCING:
TOP 10 CREATIVE FINANCING TECHNIQUES AND
STRATEGIES TO FIND MONEY TO INVEST!
The Five C’s of Credit: LEARN MORE..
CREATIVE FINANCE CAN AND WILL MAKE ALL THE
DIFFERENCE WHEN AN INVESTOR DECIDES TO INVEST
IN REAL ESTATE...
..HOME INSPECTION: HOW TO GET THE BEST OUT OF IT..
Top 10 home-buying mistakes to avoid!
HOW TO USE HOME INSPECTION REPORTS TO
NEGOTIATE SALE PRICE?...
...ACCOUNTING: The Basics of Accounting...
...TAXES: THE FUNDAMENTAL OF TAXES. THE MORE YOU
KNOW, THE LESS YOU PAY...
...ANALYTICS: Top 9 Real Estate Financial Calculator
Problems every investors should know about...
...REAL ESTATE MARKET: TODAY'S GREAT DEALS FOR
FIRST-TIME HOME-BUYERS & FOR EVERYONE AS NEVER
SEEN BEFORE! WONDERFUL OPPORTUNITY TO CREATE
TREMENDOUS AMOUNT OF WEALTH...
..FINANCIAL SYSTEM: THE UNITED STATES FINANCIAL
SYSTEM AND THE ENTIRE WORLD. LEARN MORE...
..MONEY MANAGEMENT: Ten Resolutions to Make Your
Financial Life, Three Ways to Put Your Budget On on Auto
Pilot Easier, 10 Ways to Avoid Overdraft and Bounced
Check Fees...
..
..SAVING MONEY: THE SECRETS TO SAVE MONEY, 66
WAYS TO SAVE MONEY, WAYS TO SAVE MONEY ON
GAS...
..FINANCE: THE BANKING AND THE AMERICAN FINANCIAL
SYSTEM HISTORY, SUCCESS AND FAILURE...
.. BANKING SYSTEM, BANKING HISTORY: FINANCIAL
KNOWLEDGE, GREAT THINGS TO KNOW ABOUT THE
AMERICAN BANKING HISTORY
...
TOUGH TIMES AHEAD! ---- KNOWLEDGEFINANCIAL.COM
First and foremost, it’s about your passion and commitment to your dream. Ask yourself,
would you be doing what you are doing if times were great and there was a myriad of
opportunities at your fingertips? If the answer is yes, then you can truly say that you should
continue on the path you’re on. You truly believe in your dream, and that is often more than
90% of the battle. Remember: No one said it would be easy or hard. It’s about your intention.
--------------------------------------------------
Difficult times: ----- KNOWLEDGEFINANCIAL.COM
Difficult times simply mean you have to be even more thoughtful as to how to go to market.
In, “Growing a Business,” the success or failure of one’s business is not a function of
having a lot of money to invest in its development.
In fact he states that having too much money at your disposal often discourages you from
using your imagination.
Yes, it’s more than money that makes a business a success or not. When thinking about the
viability of your business, you need to get to whether or not you can fill a void in the
marketplace for your potential buyer.
-----------------------------------------------------------------------
Transformation: ----- KNOWLEDGEFINANCIAL.COM
Transforming your dream into reality is the role of marketing. This is where the “rubber meets
the road.” Think about why marketing is so important. It’s about your ability to apply an
understanding of current market conditions and how the consumer may react to them. While
some may say that marketing is a science, I would say that it is an art. And those who are
most successful at it recognize that they need to create a curious mixture of instinct and
knowledge of consumer behavior in order to succeed.
-------------------------------------------------------------
Don’t be Afraid of Change
Irrespective of what you may feel politically, the election of Barack Obama does signal that
we need to make changes in order to turn things around. And like generations before us, for
the adept marketer there are numerous opportunities. There will be so many different needs
that a consumer will have, and that’s what makes capitalism so enduring. So don’t despair,
look at the New Year as an opportunity to re-dedicate yourself to your business and, by doing
so, make your dreams come true.
KNOWLEDGEFINANCIAL.COM
First and foremost, it’s about your passion and commitment to your dream. Ask yourself,
would you be doing what you are doing if times were great and there was a myriad of
opportunities at your fingertips? If the answer is yes, then you can truly say that you should
continue on the path you’re on. You truly believe in your dream, and that is often more than
90% of the battle. Remember: No one said it would be easy or hard. It’s about your intention.
--------------------------------------------------
Difficult times: ----- KNOWLEDGEFINANCIAL.COM
Difficult times simply mean you have to be even more thoughtful as to how to go to market.
In, “Growing a Business,” the success or failure of one’s business is not a function of
having a lot of money to invest in its development.
In fact he states that having too much money at your disposal often discourages you from
using your imagination.
Yes, it’s more than money that makes a business a success or not. When thinking about the
viability of your business, you need to get to whether or not you can fill a void in the
marketplace for your potential buyer.
-----------------------------------------------------------------------
Transformation: ----- KNOWLEDGEFINANCIAL.COM
Transforming your dream into reality is the role of marketing. This is where the “rubber meets
the road.” Think about why marketing is so important. It’s about your ability to apply an
understanding of current market conditions and how the consumer may react to them. While
some may say that marketing is a science, I would say that it is an art. And those who are
most successful at it recognize that they need to create a curious mixture of instinct and
knowledge of consumer behavior in order to succeed.
-------------------------------------------------------------
Don’t be Afraid of Change
Irrespective of what you may feel politically, the election of Barack Obama does signal that
we need to make changes in order to turn things around. And like generations before us, for
the adept marketer there are numerous opportunities. There will be so many different needs
that a consumer will have, and that’s what makes capitalism so enduring. So don’t despair,
look at the New Year as an opportunity to re-dedicate yourself to your business and, by doing
so, make your dreams come true.
KNOWLEDGEFINANCIAL.COM
Managing Debt and Credit
Avoiding credit card overload increases your opportunities to save and invest for important goals.
Topics
Managing Debt and Credit
Installment Debt
Revolving Credit
Using Credit Wisely
Eliminating Credit Card Debt
The Role of Debt
1Managing Debt and Credit
Credit was once defined as "Man's Confidence in Man." But in fact, the definition of credit today is more like
"Man's Confidence in Himself." Using credit today means you have confidence in your future ability to pay
that debt. Forty years ago, your parents may have paid cash for their homes and their cars, a largely
unheard-of event today. If they borrowed money at all, chances are it was from a relative or friend, and not a
financial institution.
Today debt and instant credit are part of our everyday lives. The convenience of instant credit, however, has
taken its toll. Many individuals use credit cards to spend more than they earn, and a few of these people
actually build themselves a debt prison from which some never emerge. On the other hand, those who
never use credit can be denied a loan or credit when they have a justifiable need or use for it. Using credit
establishes a history of financial responsibility: Until you establish a credit history, your chances of qualifying
for an important loan, such as a mortgage, are greatly reduced.
What is the balance between using credit wisely and staying out of overwhelming debt? Let's look at the
facts and some pros and cons.
Back to top
2Installment Debt
Debt comes in many forms, and most types help us in our daily lives -- when used responsibly. Most people
cannot buy a home without some financial help, and many cannot buy a car (especially a new one) without
some sort of financing. The money borrowed to purchase large-ticket items is called installment debt: The
debtor pays a portion of the total at regular intervals over a specified period of time. At the end of that time
period, the loan with interest is paid off.
Installment debt allows you to purchase items at a competitive interest rate: for example, 5% to 7% for a
30-year home mortgage and 8% or 9% for a car loan. The loan is paid back on an amortizing schedule,
monthly payments of a fixed amount that remain constant over the life of the loan. At first, most of the monthly
payment consists of interest. In later years, principal begins to be paid down.
Installment debt is easily budgeted and the debt is eliminated on a predetermined date. Even for those who
may actually have the cash to purchase the desired item, installment debt can make financial sense if you
can earn a higher return (after taxes) on your investment of cash than you must pay on your installment debt.
Back to top
3Revolving Credit
A revolving line of credit, also called "open-ended credit," is made available to you for use at any time.
Examples of revolving credit are credit cards such as Visa, Mastercard, and department store cards. When
you apply for one of these cards, you receive a credit limit based on your credit payment history and income.
When you use the credit line, you must make monthly minimum payments based on the total balance
outstanding that month. Some lines of credit will also have an annual account fee.
While revolving credit is a convenient way to borrow, it can also become an endless pit of minimum
payments that barely cover the interest due. Many cards charge annual rates of interest of 18% or higher. As
you pay off your debt, the minimum payment is also reduced, thus extending your payoff period and,
consequently, the interest you pay. Paying just the minimum due on a $2,000 credit card loan could mean
making monthly interest payments for 10 or more years!
Revolving credit, in addition to being convenient, eliminates the need to carry a lot of cash and can help
establish you as a creditworthy risk for future loans. The itemized monthly statements also can help you track
your expenses. But some people can easily yield to the temptation that the convenience of credit cards
offers. Impulse buying, failing to compare costs, and purchasing large items you can't afford are all downfalls
brought on by always available purchasing power. Spending more than you earn in any given period is a
dangerous practice at best, but doing it over an extended period of time can be financial suicide.
Installment Debt vs. Revolving Debt
Lower interest rates and an amortizing repayment schedule can make installment debt a much cheaper
alternative to revolving credit.
4Using Credit Wisely
To use credit intelligently, start by examining the terms of the card(s) you are currently using. Keeping track
of your cards, their rates, and your current balances will help you to be aware of how you use credit cards.
Increased competition in recent years has led some credit card companies to offer enticing features to
attract new cardholders, including no annual fees and low interest rates for an introductory period. (And
credit card companies sometimes will give their introductory rates to existing cardholders so that they won't
transfer their balances to another credit card company.)
Back to top
5Eliminating Credit Card Debt
If you think you may have too much credit card debt, begin to address it by honestly evaluating your spending
habits. Examine your existing expenses to analyze how your money is spent. You will most likely be able to
identify the problem areas where you are more likely to spend too much or too readily with credit cards.
Then, based on your current spending practices, create a realistic budget to pay off your credit card debt in
the shortest time possible while not adding any more debt to it. For assistance, you may want to turn to your
financial advisor, who can help you to allocate your resources wisely to address your credit card debt.
Back to top
6The Role of Debt
Today, carrying installment debt is almost a fact of life. Mortgages, car loans, or small-business loans (to
name a few) are part of almost everyone's life. On the other hand, carrying credit card debt is usually not a
good idea. At interest rates of 16% and up, it's hard to justify keeping savings that could pay off that 18%
department-store credit card in the bank at 2%.
Debt and credit play increasingly important roles in our lives. As the aging Baby Boomers get closer to their
peak earning years, many are realizing the need to reduce debt and increase savings. Even though
analyzing your spending habits and creating a budget to address your debt may seem a little overwhelming,
the simplicity of the philosophy of the Depression era still stands: Never spend more than you earn. Once you
have come to grips with this basic fact, managing your debt will become far easier and more rewarding.
Back to top
Summary
Installment debt means the loan is paid off in a specified period of time by making predetermined payments
periodically.
Revolving credit is a line of credit that is instantly available through use of a credit card (and sometimes a
check).
As you pay down your debt in a revolving line of credit, the minimum payment is also reduced, thus
extending your payoff period and, consequently, the interest you pay.
Spending more than you earn in any given period is a dangerous practice at best, but doing it over an
extended period of time can be financial suicide.
Checklist
Remove high-interest-rate credit cards from your wallet or purse to reduce the temptation to use them
unnecessarily.
Read the fine print on all account statements to understand how your fees and payment amounts are
calculated.
Prepare to transfer balances from accounts with temporary low interest rates that are scheduled to rise soon.
Use the savings from your debt reduction initiatives to set more money aside for important short- and
long-term financial goals.
Avoiding credit card overload increases your opportunities to save and invest for important goals.
Topics
Managing Debt and Credit
Installment Debt
Revolving Credit
Using Credit Wisely
Eliminating Credit Card Debt
The Role of Debt
1Managing Debt and Credit
Credit was once defined as "Man's Confidence in Man." But in fact, the definition of credit today is more like
"Man's Confidence in Himself." Using credit today means you have confidence in your future ability to pay
that debt. Forty years ago, your parents may have paid cash for their homes and their cars, a largely
unheard-of event today. If they borrowed money at all, chances are it was from a relative or friend, and not a
financial institution.
Today debt and instant credit are part of our everyday lives. The convenience of instant credit, however, has
taken its toll. Many individuals use credit cards to spend more than they earn, and a few of these people
actually build themselves a debt prison from which some never emerge. On the other hand, those who
never use credit can be denied a loan or credit when they have a justifiable need or use for it. Using credit
establishes a history of financial responsibility: Until you establish a credit history, your chances of qualifying
for an important loan, such as a mortgage, are greatly reduced.
What is the balance between using credit wisely and staying out of overwhelming debt? Let's look at the
facts and some pros and cons.
Back to top
2Installment Debt
Debt comes in many forms, and most types help us in our daily lives -- when used responsibly. Most people
cannot buy a home without some financial help, and many cannot buy a car (especially a new one) without
some sort of financing. The money borrowed to purchase large-ticket items is called installment debt: The
debtor pays a portion of the total at regular intervals over a specified period of time. At the end of that time
period, the loan with interest is paid off.
Installment debt allows you to purchase items at a competitive interest rate: for example, 5% to 7% for a
30-year home mortgage and 8% or 9% for a car loan. The loan is paid back on an amortizing schedule,
monthly payments of a fixed amount that remain constant over the life of the loan. At first, most of the monthly
payment consists of interest. In later years, principal begins to be paid down.
Installment debt is easily budgeted and the debt is eliminated on a predetermined date. Even for those who
may actually have the cash to purchase the desired item, installment debt can make financial sense if you
can earn a higher return (after taxes) on your investment of cash than you must pay on your installment debt.
Back to top
3Revolving Credit
A revolving line of credit, also called "open-ended credit," is made available to you for use at any time.
Examples of revolving credit are credit cards such as Visa, Mastercard, and department store cards. When
you apply for one of these cards, you receive a credit limit based on your credit payment history and income.
When you use the credit line, you must make monthly minimum payments based on the total balance
outstanding that month. Some lines of credit will also have an annual account fee.
While revolving credit is a convenient way to borrow, it can also become an endless pit of minimum
payments that barely cover the interest due. Many cards charge annual rates of interest of 18% or higher. As
you pay off your debt, the minimum payment is also reduced, thus extending your payoff period and,
consequently, the interest you pay. Paying just the minimum due on a $2,000 credit card loan could mean
making monthly interest payments for 10 or more years!
Revolving credit, in addition to being convenient, eliminates the need to carry a lot of cash and can help
establish you as a creditworthy risk for future loans. The itemized monthly statements also can help you track
your expenses. But some people can easily yield to the temptation that the convenience of credit cards
offers. Impulse buying, failing to compare costs, and purchasing large items you can't afford are all downfalls
brought on by always available purchasing power. Spending more than you earn in any given period is a
dangerous practice at best, but doing it over an extended period of time can be financial suicide.
Installment Debt vs. Revolving Debt
Lower interest rates and an amortizing repayment schedule can make installment debt a much cheaper
alternative to revolving credit.
4Using Credit Wisely
To use credit intelligently, start by examining the terms of the card(s) you are currently using. Keeping track
of your cards, their rates, and your current balances will help you to be aware of how you use credit cards.
Increased competition in recent years has led some credit card companies to offer enticing features to
attract new cardholders, including no annual fees and low interest rates for an introductory period. (And
credit card companies sometimes will give their introductory rates to existing cardholders so that they won't
transfer their balances to another credit card company.)
Back to top
5Eliminating Credit Card Debt
If you think you may have too much credit card debt, begin to address it by honestly evaluating your spending
habits. Examine your existing expenses to analyze how your money is spent. You will most likely be able to
identify the problem areas where you are more likely to spend too much or too readily with credit cards.
Then, based on your current spending practices, create a realistic budget to pay off your credit card debt in
the shortest time possible while not adding any more debt to it. For assistance, you may want to turn to your
financial advisor, who can help you to allocate your resources wisely to address your credit card debt.
Back to top
6The Role of Debt
Today, carrying installment debt is almost a fact of life. Mortgages, car loans, or small-business loans (to
name a few) are part of almost everyone's life. On the other hand, carrying credit card debt is usually not a
good idea. At interest rates of 16% and up, it's hard to justify keeping savings that could pay off that 18%
department-store credit card in the bank at 2%.
Debt and credit play increasingly important roles in our lives. As the aging Baby Boomers get closer to their
peak earning years, many are realizing the need to reduce debt and increase savings. Even though
analyzing your spending habits and creating a budget to address your debt may seem a little overwhelming,
the simplicity of the philosophy of the Depression era still stands: Never spend more than you earn. Once you
have come to grips with this basic fact, managing your debt will become far easier and more rewarding.
Back to top
Summary
Installment debt means the loan is paid off in a specified period of time by making predetermined payments
periodically.
Revolving credit is a line of credit that is instantly available through use of a credit card (and sometimes a
check).
As you pay down your debt in a revolving line of credit, the minimum payment is also reduced, thus
extending your payoff period and, consequently, the interest you pay.
Spending more than you earn in any given period is a dangerous practice at best, but doing it over an
extended period of time can be financial suicide.
Checklist
Remove high-interest-rate credit cards from your wallet or purse to reduce the temptation to use them
unnecessarily.
Read the fine print on all account statements to understand how your fees and payment amounts are
calculated.
Prepare to transfer balances from accounts with temporary low interest rates that are scheduled to rise soon.
Use the savings from your debt reduction initiatives to set more money aside for important short- and
long-term financial goals.
Buying Your First Home
Finding the right first home starts with a price range and a short list of desirable neighborhoods. But there are
many other factors you'll need to consider before investing in what may be your biggest asset.
Topics
Buying Your First Home
How Much Mortgage Can You Afford?
Costs of Buying a Home
Ongoing Costs
Choosing a Neighborhood
Finding a Broker
1Buying Your First Home
Home ownership is the cornerstone of the American Dream. But before you start looking, there are a number of
things you need to consider. First, you should determine what your needs are and whether owning your own
home will meet those needs. Do you picture yourself mowing the lawn on Saturday, or leaving your urban condo
for the beach? The best advice is to look at buying a home as a lifestyle investment, and only secondly as a
financial investment.
Even if housing prices don't continue to increase at the torrid pace seen in recent years in many areas, buying a
home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30
years you will own a substantial asset that can be converted into cash to help fund retirement or a child's
education. There are also tax benefits.
Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle
down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take
the plunge, you'll need to determine how much you can spend and where you want to live.
Back to top
2How Much Mortgage Can You Afford?
Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association
(Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to
investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down
payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.
The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other
deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income
includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony
payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross
income.
The total obligations to income ratio is the percentage of all income required to service your total monthly
payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months
are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including
basic housing costs, should not exceed 36%.
Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify"
you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more
attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or
sellers than a deal that falls through due to a lack of financing.
In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios
assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as
0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate.
Lowering the down payment increases leverage (the opportunity to make a profit using borrowed money) but
also increases monthly payments.
How Much Home Can You Afford?
Bob and Janet's combined income is $50,000 a year, or $4,166 a month. Their housing expense ratio of 28%
yields a monthly maximum of $1,166 for mortgage, insurance, and taxes ($4,166 x 0.28 = $1,166).
Their total debt ceiling of 36% is $1,583 (4,166 x 0.36 = $1,500). Their monthly debt payments include a $200 car
payment, credit card payments of $100, and student loan payments of $200. Subtracting this total of $500 from
the $1,500 permitted leaves $1,000 in monthly housing payments.
Back to top
3Costs of Buying a Home
Many home buyers are surprised (shocked might be a better word) to find that a down payment is not the only
cash requirement. A home inspection can cost $200 or more. Closing costs may include loan origination fees,
up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first
month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are
assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in
your final costs. All this will probably add up to be between 3% and 8% of your purchase price.
Back to top
4Ongoing Costs
In addition to mortgage payments, there are other costs associated with home ownership. Utilities, heat, property
taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and
replacement of appliances are the major costs incurred. Make sure you understand how much you are willing
and able to spend on such items.
Condominiums may not have the same costs as a house, but they do have association fees. Older homes are
often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home,
be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the
neighborhood.
Back to top
5Choosing a Neighborhood
Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in
making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes,
transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza
shop next door might alter your property's future value. On the other hand, you may want to run a business out of
your home.
Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the
lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor
in the cost of repairs or upgrades that such a house may need.
Back to top
6Finding a Broker
If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and
can be a valuable source of information concerning the home buying process. Ask lots of questions, but
remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller
and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is
paid by you. Seller's brokers are paid by the seller.
Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties
for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split
between the listing broker and the broker that eventually sells the home. Don't be surprised if your broker is
eager to sell you their own listing since they would then earn the entire commission.
Once you've determined a price range and location, you're ready to look at individual homes. Remember that
much of a home's value is derived from the values of those surrounding it. Since the average residency in a
house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to
you.
Although it can be difficult, try to remember that you will probably want to sell this home someday. The more
research you do today, the better your decision will look in the years to come.
Back to top
Summary
Buying a home can mean building significant value through the years.
Think carefully about how much you can afford to spend and consider borrowing guidelines like those used by
Fannie Mae.
Prequalifying with your lender is a good way to determine how much house you can afford.
You will need cash for a down payment and closing costs. Generally speaking, the higher the down payment, the
lower the interest rate and monthly mortgage payment.
In addition to your mortgage payments, you will also need to consider the other costs of home ownership.
Schools, taxes, services, crime rates, transportation, and zoning are important considerations when selecting a
neighborhood.
Brokers usually represent the seller, but they can be valuable sources of information for buyers as well. A
broker that belongs to the Multiple Listing Service will be able to offer a wider variety of homes to choose from.
Remember to consider resalability when buying your home.
Checklist
Update your household budget so you can begin to realistically assess how much home you can afford. Be sure
to factor in all your monthly income and all the expenses that may come with a home.
Add up any savings you could use toward a down payment, and decide whether you need to save more before
you start house shopping.
Start talking to lenders about your options for prequalification and preapproval.
Finding the right first home starts with a price range and a short list of desirable neighborhoods. But there are
many other factors you'll need to consider before investing in what may be your biggest asset.
Topics
Buying Your First Home
How Much Mortgage Can You Afford?
Costs of Buying a Home
Ongoing Costs
Choosing a Neighborhood
Finding a Broker
1Buying Your First Home
Home ownership is the cornerstone of the American Dream. But before you start looking, there are a number of
things you need to consider. First, you should determine what your needs are and whether owning your own
home will meet those needs. Do you picture yourself mowing the lawn on Saturday, or leaving your urban condo
for the beach? The best advice is to look at buying a home as a lifestyle investment, and only secondly as a
financial investment.
Even if housing prices don't continue to increase at the torrid pace seen in recent years in many areas, buying a
home can be a good financial investment. Making mortgage payments forces you to save, and after 15 to 30
years you will own a substantial asset that can be converted into cash to help fund retirement or a child's
education. There are also tax benefits.
Like many other investments, however, real estate prices can fluctuate considerably. If you aren't ready to settle
down in one spot for a few years, you probably should defer buying a home until you are. If you are ready to take
the plunge, you'll need to determine how much you can spend and where you want to live.
Back to top
2How Much Mortgage Can You Afford?
Many mortgages today are being resold in the secondary markets. The Federal National Mortgage Association
(Fannie Mae) is a government-sponsored organization that purchases mortgages from lenders and sells them to
investors. Mortgages that conform to Fannie Mae's standards may carry lower interest rates or smaller down
payments. To qualify, the mortgage borrower needs to meet two ratio requirements that are industry standards.
The housing expense ratio compares basic monthly housing costs to the buyer's gross (before taxes and other
deductions) monthly income. Basic costs include monthly mortgage, insurance, and property taxes. Income
includes any steady cash flow, including salary, self-employment income, pensions, child support, or alimony
payments. For a conventional loan, your monthly housing cost should not exceed 28% of your monthly gross
income.
The total obligations to income ratio is the percentage of all income required to service your total monthly
payments. Monthly payments on student loans, installment loans, and credit card balances older than 10 months
are added to basic housing costs and then divided by gross income. Your total monthly debt payments, including
basic housing costs, should not exceed 36%.
Many home buyers choose to arrange financing before shopping for a home and most lenders will "prequalify"
you for a certain amount. Prequalification helps you focus on homes you can afford. It also makes you a more
attractive buyer and can help you negotiate a lower purchase price. Nothing is more disheartening for buyers or
sellers than a deal that falls through due to a lack of financing.
In addition to qualifying for a mortgage, you will probably need a down payment. The 28% to 36% debt ratios
assume a 10% down payment. In practice, down payment requirements vary from more than 20% to as low as
0% for some Veterans Administration (VA) loans. Down payments greater than 20% generally buy a better rate.
Lowering the down payment increases leverage (the opportunity to make a profit using borrowed money) but
also increases monthly payments.
How Much Home Can You Afford?
Bob and Janet's combined income is $50,000 a year, or $4,166 a month. Their housing expense ratio of 28%
yields a monthly maximum of $1,166 for mortgage, insurance, and taxes ($4,166 x 0.28 = $1,166).
Their total debt ceiling of 36% is $1,583 (4,166 x 0.36 = $1,500). Their monthly debt payments include a $200 car
payment, credit card payments of $100, and student loan payments of $200. Subtracting this total of $500 from
the $1,500 permitted leaves $1,000 in monthly housing payments.
Back to top
3Costs of Buying a Home
Many home buyers are surprised (shocked might be a better word) to find that a down payment is not the only
cash requirement. A home inspection can cost $200 or more. Closing costs may include loan origination fees,
up-front "points" (prepaid interest), application fees, appraisal fee, survey, title search and title insurance, first
month's homeowners insurance, recording fees and attorney's fees. In many locales, transfer taxes are
assessed. Finally, adjustments for heating oil or property taxes already paid by the sellers will be included in
your final costs. All this will probably add up to be between 3% and 8% of your purchase price.
Back to top
4Ongoing Costs
In addition to mortgage payments, there are other costs associated with home ownership. Utilities, heat, property
taxes, repairs, insurance, services such as trash or snow removal, landscaping, assessments, and
replacement of appliances are the major costs incurred. Make sure you understand how much you are willing
and able to spend on such items.
Condominiums may not have the same costs as a house, but they do have association fees. Older homes are
often less expensive to buy, but repairs may be greater than those in a newer home. When looking for a home,
be sure to check the actual expenses of the previous owners, or expenses for a comparable home in the
neighborhood.
Back to top
5Choosing a Neighborhood
Before you start looking at homes, look at neighborhoods. Schools and other services play a large part in
making a neighborhood attractive. Even if you don't have children, your future buyer may. Crime rates, taxes,
transportation, and town services are other things to look at. Finally, learn the local zoning laws. A new pizza
shop next door might alter your property's future value. On the other hand, you may want to run a business out of
your home.
Look for a neighborhood where prices are increasing. As the prices of the better homes increase, values of the
lesser homes may rise as well. If you find a less expensive home in a good neighborhood, make sure you factor
in the cost of repairs or upgrades that such a house may need.
Back to top
6Finding a Broker
If you are a first-time home buyer, you will probably want to work with a broker. Brokers know the market and
can be a valuable source of information concerning the home buying process. Ask lots of questions, but
remember that most brokers are working for the seller, and in the end, their primary obligation is to the seller
and not to you. An alternative is a so-called buyer's broker. This individual does work for you, and therefore is
paid by you. Seller's brokers are paid by the seller.
Make sure that the broker has access to the Multiple Listing Service (MLS). This service lists all the properties
for sale by most major brokers across the country. Brokerage commissions average 5% to 7% and are split
between the listing broker and the broker that eventually sells the home. Don't be surprised if your broker is
eager to sell you their own listing since they would then earn the entire commission.
Once you've determined a price range and location, you're ready to look at individual homes. Remember that
much of a home's value is derived from the values of those surrounding it. Since the average residency in a
house is seven years, consider the qualities that will be attractive to future buyers as well as those attractive to
you.
Although it can be difficult, try to remember that you will probably want to sell this home someday. The more
research you do today, the better your decision will look in the years to come.
Back to top
Summary
Buying a home can mean building significant value through the years.
Think carefully about how much you can afford to spend and consider borrowing guidelines like those used by
Fannie Mae.
Prequalifying with your lender is a good way to determine how much house you can afford.
You will need cash for a down payment and closing costs. Generally speaking, the higher the down payment, the
lower the interest rate and monthly mortgage payment.
In addition to your mortgage payments, you will also need to consider the other costs of home ownership.
Schools, taxes, services, crime rates, transportation, and zoning are important considerations when selecting a
neighborhood.
Brokers usually represent the seller, but they can be valuable sources of information for buyers as well. A
broker that belongs to the Multiple Listing Service will be able to offer a wider variety of homes to choose from.
Remember to consider resalability when buying your home.
Checklist
Update your household budget so you can begin to realistically assess how much home you can afford. Be sure
to factor in all your monthly income and all the expenses that may come with a home.
Add up any savings you could use toward a down payment, and decide whether you need to save more before
you start house shopping.
Start talking to lenders about your options for prequalification and preapproval.
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charges for Real Estate For Sale By Owner.
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License, renew a Lic. Check the status of a License in the state of Florida.
..The U.S. Federal Government most important websites to know about..
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counties general information…
STATE OF FLORIDA: The most needed websites to know about…
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The 7 New Rules of Financial Security
In a world turned upside down, you must re-examine some basic assumptions. A good place to
start: understanding the true nature of risk.
Rule No. 1: Risk
Old thinking: If you can stomach the ups and downs that come with risk, you'll be rewarded.
New rule: Risk isn't about your stomach. It's about making or missing an important goal.
You know you have to consider risk. But what is risk? Many of us have learned to think of risk as
synonymous with volatility. For years, what came down reliably bounced back even higher.
You could easily conclude that risk tolerance was just a matter of taste. As long as you had the
fortitude to see the occasional loss on your 401(k) statement and not panic, you would capture
superior returns over time.
What to do: You shouldn't run from risky investments just because they lost money - that train
has left the station. But the old buy-on-the-dips advice isn't quite right either. This bear
market's lesson is that how much risk you can take is a matter of how much you can lose and
still meet your basic goals. That may mean scaling back on stocks, even if you miss some of
the next market rebound.
Rule No. 2: Cash
Old thinking: Keep enough money in ultrasafe accounts to cover life's emergencies, but no
more.
New rule: Relying more on cash can rescue you in an "asset emergency."
For most of your career you'll want to set aside about six months' worth of living expenses in
the bank. That money covers the mortgage and puts food on the table should you lose your
job. The fact that you'll earn only about 2% is beside the point. You can't take the risk.
The simultaneous crash in stocks and houses has taught us that we need to redefine
"emergency."Rande Spiegelman, vice president of financial planning for the Schwab Center
for Financial Research, recommends looking at the next one to three years and adding up any
big-ticket stuff you see coming: tuition, a wedding, a down payment on a house. Once you
have your total, aim to hold that much in a cash account or a low-risk investment such as a
high-quality short-term bond fund.
What to do: It's not easy to build cash savings and a retirement fund at the same time. If you
have to make choices, build up that emergency fund first because you can't expect to lean on
your home equity or stocks if you lose your job. And see if you have some flexibility on the
big-ticket obligations. Maybe you plan for a state school rather than a private college, or
downsize the wedding. If all your assets are in a 401(k), move some of that balance to low-risk
investment options as you build your cash funds. That will preserve more to tap via a 401(k)
loan in a pinch. Not a terrific option, but it can beat the alternatives.
In the years just before and after retirement, cash becomes even more important. You don't
want to sell stocks during a bear market to buy groceries. Aim for two to four years' worth of
living expenses in low-risk assets as you near retirement.
Rule No. 3: Human capital
Old thinking: The longer your time horizon, the more stocks you should own.
New rule: Time isn't everything. You must also consider your earnings potential.
It's one of the basic rules of thumb: The more years you have to recoup losses, the more
aggressive you can be. Unfortunately, the math isn't so clear-cut.
Here's a better way to think about how aggressive your portfolio should be: Imagine that it
includes not only stocks and bonds but also your human capital, meaning your ability to earn
income by working. The safer it is, the more chances you can afford to take with your other
assets - that is, your portfolio.
This doesn't mean that time no longer matters. As you age, the value of your human capital
declines, and you'll need to secure more of your savings. So the conventional advice to hold
a lot in stocks when you are young and gradually trim back can still make sense.
But not for everyone. The nature of your career may make your human capital more bond-like
or more stock-like, says finance professor Moshe Milevsky of York University in Toronto.
Tenured professors like Milevsky have human capital that resembles a triple-A-rated bond,
especially when they have a solid pension plan. Those lucky souls can dive aggressively into
stocks and even stay there as they approach retirement, he says. The human capital of a
commission-based mortgage broker, on the other hand, is pretty clearly a stock - and it's not a
blue chip. That person should own a fair amount of bonds, even when young.
What to do: Assess your human capital. A typical worker's income is about 70% like a bond
and 30% like a stock, says Thomas Idzorek, chief investment officer for Ibbotson Associates.
Use that as your baseline and then think about how long you'll be working, the stability of your
current job, and your ability to change careers if you have to. You've probably realized in the
past few months that your human capital is not as secure as you once thought. If you've been
an aggressive investor, that alone may be a reason to shift more of your assets to safer ground.
Rule No. 4: Borrowing
Old thinking: Borrowing sensibly is a good way to build wealth.
New rule: Borrow cautiously. You have to worry about the other guy's debt too.
The quarter-century leading up to 2007 wasn't simply a golden age for stocks. It was also a
bull market for leverage. (That's Wall Streetspeak for debt.) Since 1982, mortgage rates have
fallen from 16% to below 6%. The levy on college loans dropped to around 3%. Americans
responded to easy credit in a predictable way. The personal savings rate fell from over 12% to
zilch, and household debt payments as a percentage of disposable income rose by a third as
families "put it on the card" and paid for lavish kitchen upgrades with home-equity loans.
Looking back, America's borrowing binge was nuts. Families were leaning on housing wealth,
and that wealth was shaky.
The obvious moral here is to be conservative. There are always good reasons to borrow, even
today. You need a mortgage to buy a house, and a college education provides enough of a
lifetime payoff to justify a loan. But you ought to stretch less.
There's a subtler lesson too. David Ellison, president of the FBR Funds, says that you have
more exposure to leverage than you think, especially now that everyone is trying to unload
debt. Perhaps your employer borrowed a lot over the past decade and now needs to conserve
cash, so it's laying off staff. Suddenly that HELOC you could easily handle on your salary
doesn't look like such a super idea. You can't lean on your investments for help, because
many of the companies you owned used leverage to pump up profits, and now they can't
borrow, so their earnings and stock prices are falling. And it's harder to shore up your own
balance sheet by selling your house when banks are reining in lending and potential buyers
are scared to borrow for an asset that may decline further.
What to do: Be conservative about debt? Make that very conservative. Especially when your
neighbors aren't. Get a mortgage you can afford for the life of the loan, and put at least 20%
down.
Rule No. 5: Housing
Old thinking: You can expect your house to appreciate handsomely over the long run.
New rule: Your home won't make you rich. But it is an important savings tool.
If you live on one of the coasts, you probably guessed sometime around 2005 that home
prices couldn't keep rising the way they were. But the severity of the crash was still a shock:
You heard a lot about how the market would have to "cool off" or "get back to normal" - the
implication being that slow but steady appreciation was the future.
But the long-run data always told a different story. Yale University economist Robert Shiller
looked closely in 2005 at the history of home prices since 1890, using a database he
constructed. What he found was surprising. Except for two spectacular booms - the first after
World War II and the second starting in 1998 - real estate appreciation has been unimpressive
after figuring in inflation. As Shiller wrote in "Irrational Exuberance," technology has allowed
builders to nail up more houses faster, ensuring that supply never gets too far behind demand
(and often gets ahead of it).
Even when prices are rising, gains on real estate aren't as dazzling as they look, once you
account for expenses. Maintenance costs typically run at about 1% of a home's value
annually, in addition to insurance and taxes. If you remodel, the most you can expect to
recoup is about 80%. You have to pay steep fees when you buy (up to 3% in closing costs)
and sell (up to 6% for realtor fees).
What to do: This doesn't mean you have to rent, just that you should have modest
expectations for your house as a wealth builder. There are still financial pluses. First, owning a
house gives you a hedge against rising values in your own community so that you don't risk
being priced out as rents go up. (Ask a New Yorker about that.) Second, a traditional 30-year
mortgage acts as what economists call a "commitment device," or a tool that forces you to
save. Instead of writing a check to a landlord, you gradually pay off principal. At the end, you
own a house. Aside from your 401(k), no other asset enforces such discipline.
Rule No. 6: Diversification
Old thinking: A diversified portfolio lowers your risk.
New rule: Diversification won't always save you - and you need more of it than you think.
Diversification hasn't stopped you from getting hurt in this downturn. Both U.S. and foreign
stocks are deep in the red. Holding bonds did cushion your losses, but most kinds of bonds still
declined. What happened?
Jeremy Grantham, chief investment strategist at GMO, observed back in 2007 that we had a
bubble not just in one or two kinds of assets, but in risk. Investors around the world were so
confident, and so hungry for even a little extra return, that they were throwing money at
anything that might deliver. Now that the risk bubble has burst, all those investors want now is
the safety of U.S. Treasuries. So everything has moved roughly in sync, both up and down, for
a few years.
Bear in mind, though, that these times are, to say the least, unusual. Over a longer period - as
little as a decade - diversification still looks effective. While large U.S. stocks are down the
past 10 years, U.S. corporate bonds earned 4.6% a year for the same period.
But in a global economy where money moves quickly, you have to work harder at
diversification than before.
What to do: To ensure you are diversified, you don't have to go out and buy 16 new mutual
funds. First, look under the hood of the funds you have to see if you already own some of those
assets. An easy way to do so is to plug your holdings into Morningstar.com's Instant X-Ray tool.
And buy funds that kill two birds with one stone. The T. Rowe Price International Bond fund,
for example, invests up to 20% of its assets in emerging markets and the rest in developed
countries. Put that together with a high-yield fund and a broad U.S. bond fund, and you'll own
most of the bond universe.
Rule No. 7: Retirement
Old thinking: Retiring early is a prize.
New rule: Retiring early is a problem.
Ever since Uncle Sam set 65 as the age you could retire and collect full Social Security
benefits (it's 66 or 67 for boomers today), workers have been trying to beat that bogey by
quitting early. And that seemed well within reach earlier in this decade after a bull market that
gave workers confidence that their money could work for them rather than the other way
around.
But the reality of early retirement, even before the stock market's sickening plunge, was never
quite that rosy. More than half of early retirees leave work before they intended, and of those,
nine in 10 depart because they get sick or are downsized.
And now the financial prospects for those who had a shot at a secure early retirement have
dimmed: Long-tenured workers nearing retirement have seen their 401(k) accounts shrink an
average of 30% over the past 14 months, according to EBRI. There's no way around it: The
numbers require you to rethink your plans.
What to do: "By delaying retirement just one year you could increase your annual retirement
income by 9%," says Richard Johnson, senior fellow at the Urban Institute. If you can hang on
to your current high-paying post, great. The reality, of course, is that in an era of harsh cost
cutting, well-paid older workers are more vulnerable. And you might not want to stick it out any
longer anyway if the severance is decent. But there's much to be gained from finding another
job, even if it's a lower-paid or part-time position. If you can earn enough to avoid collecting
Social Security benefits early or dipping into your retirement accounts, research by T. Rowe
Price shows, you'll barely feel a hit to your income when you do retire. If your new job comes
with health benefits, so much the better. The average health-care tab for an early retiree
before he is eligible for Medicare runs to $8,500 a year, says an AARP study.
Despite all those benefits, if you are still many years away from the retire-or-work decision, you
should think of working longer as Plan B. As we noted, you won't have complete control over
your ability to work - your health or the job market could make it difficult. That means you
can't afford to assume that you'll just work a few more years if things go wrong. You will still
have to stick to rules 1 through 6.
In a world turned upside down, you must re-examine some basic assumptions. A good place to
start: understanding the true nature of risk.
Rule No. 1: Risk
Old thinking: If you can stomach the ups and downs that come with risk, you'll be rewarded.
New rule: Risk isn't about your stomach. It's about making or missing an important goal.
You know you have to consider risk. But what is risk? Many of us have learned to think of risk as
synonymous with volatility. For years, what came down reliably bounced back even higher.
You could easily conclude that risk tolerance was just a matter of taste. As long as you had the
fortitude to see the occasional loss on your 401(k) statement and not panic, you would capture
superior returns over time.
What to do: You shouldn't run from risky investments just because they lost money - that train
has left the station. But the old buy-on-the-dips advice isn't quite right either. This bear
market's lesson is that how much risk you can take is a matter of how much you can lose and
still meet your basic goals. That may mean scaling back on stocks, even if you miss some of
the next market rebound.
Rule No. 2: Cash
Old thinking: Keep enough money in ultrasafe accounts to cover life's emergencies, but no
more.
New rule: Relying more on cash can rescue you in an "asset emergency."
For most of your career you'll want to set aside about six months' worth of living expenses in
the bank. That money covers the mortgage and puts food on the table should you lose your
job. The fact that you'll earn only about 2% is beside the point. You can't take the risk.
The simultaneous crash in stocks and houses has taught us that we need to redefine
"emergency."Rande Spiegelman, vice president of financial planning for the Schwab Center
for Financial Research, recommends looking at the next one to three years and adding up any
big-ticket stuff you see coming: tuition, a wedding, a down payment on a house. Once you
have your total, aim to hold that much in a cash account or a low-risk investment such as a
high-quality short-term bond fund.
What to do: It's not easy to build cash savings and a retirement fund at the same time. If you
have to make choices, build up that emergency fund first because you can't expect to lean on
your home equity or stocks if you lose your job. And see if you have some flexibility on the
big-ticket obligations. Maybe you plan for a state school rather than a private college, or
downsize the wedding. If all your assets are in a 401(k), move some of that balance to low-risk
investment options as you build your cash funds. That will preserve more to tap via a 401(k)
loan in a pinch. Not a terrific option, but it can beat the alternatives.
In the years just before and after retirement, cash becomes even more important. You don't
want to sell stocks during a bear market to buy groceries. Aim for two to four years' worth of
living expenses in low-risk assets as you near retirement.
Rule No. 3: Human capital
Old thinking: The longer your time horizon, the more stocks you should own.
New rule: Time isn't everything. You must also consider your earnings potential.
It's one of the basic rules of thumb: The more years you have to recoup losses, the more
aggressive you can be. Unfortunately, the math isn't so clear-cut.
Here's a better way to think about how aggressive your portfolio should be: Imagine that it
includes not only stocks and bonds but also your human capital, meaning your ability to earn
income by working. The safer it is, the more chances you can afford to take with your other
assets - that is, your portfolio.
This doesn't mean that time no longer matters. As you age, the value of your human capital
declines, and you'll need to secure more of your savings. So the conventional advice to hold
a lot in stocks when you are young and gradually trim back can still make sense.
But not for everyone. The nature of your career may make your human capital more bond-like
or more stock-like, says finance professor Moshe Milevsky of York University in Toronto.
Tenured professors like Milevsky have human capital that resembles a triple-A-rated bond,
especially when they have a solid pension plan. Those lucky souls can dive aggressively into
stocks and even stay there as they approach retirement, he says. The human capital of a
commission-based mortgage broker, on the other hand, is pretty clearly a stock - and it's not a
blue chip. That person should own a fair amount of bonds, even when young.
What to do: Assess your human capital. A typical worker's income is about 70% like a bond
and 30% like a stock, says Thomas Idzorek, chief investment officer for Ibbotson Associates.
Use that as your baseline and then think about how long you'll be working, the stability of your
current job, and your ability to change careers if you have to. You've probably realized in the
past few months that your human capital is not as secure as you once thought. If you've been
an aggressive investor, that alone may be a reason to shift more of your assets to safer ground.
Rule No. 4: Borrowing
Old thinking: Borrowing sensibly is a good way to build wealth.
New rule: Borrow cautiously. You have to worry about the other guy's debt too.
The quarter-century leading up to 2007 wasn't simply a golden age for stocks. It was also a
bull market for leverage. (That's Wall Streetspeak for debt.) Since 1982, mortgage rates have
fallen from 16% to below 6%. The levy on college loans dropped to around 3%. Americans
responded to easy credit in a predictable way. The personal savings rate fell from over 12% to
zilch, and household debt payments as a percentage of disposable income rose by a third as
families "put it on the card" and paid for lavish kitchen upgrades with home-equity loans.
Looking back, America's borrowing binge was nuts. Families were leaning on housing wealth,
and that wealth was shaky.
The obvious moral here is to be conservative. There are always good reasons to borrow, even
today. You need a mortgage to buy a house, and a college education provides enough of a
lifetime payoff to justify a loan. But you ought to stretch less.
There's a subtler lesson too. David Ellison, president of the FBR Funds, says that you have
more exposure to leverage than you think, especially now that everyone is trying to unload
debt. Perhaps your employer borrowed a lot over the past decade and now needs to conserve
cash, so it's laying off staff. Suddenly that HELOC you could easily handle on your salary
doesn't look like such a super idea. You can't lean on your investments for help, because
many of the companies you owned used leverage to pump up profits, and now they can't
borrow, so their earnings and stock prices are falling. And it's harder to shore up your own
balance sheet by selling your house when banks are reining in lending and potential buyers
are scared to borrow for an asset that may decline further.
What to do: Be conservative about debt? Make that very conservative. Especially when your
neighbors aren't. Get a mortgage you can afford for the life of the loan, and put at least 20%
down.
Rule No. 5: Housing
Old thinking: You can expect your house to appreciate handsomely over the long run.
New rule: Your home won't make you rich. But it is an important savings tool.
If you live on one of the coasts, you probably guessed sometime around 2005 that home
prices couldn't keep rising the way they were. But the severity of the crash was still a shock:
You heard a lot about how the market would have to "cool off" or "get back to normal" - the
implication being that slow but steady appreciation was the future.
But the long-run data always told a different story. Yale University economist Robert Shiller
looked closely in 2005 at the history of home prices since 1890, using a database he
constructed. What he found was surprising. Except for two spectacular booms - the first after
World War II and the second starting in 1998 - real estate appreciation has been unimpressive
after figuring in inflation. As Shiller wrote in "Irrational Exuberance," technology has allowed
builders to nail up more houses faster, ensuring that supply never gets too far behind demand
(and often gets ahead of it).
Even when prices are rising, gains on real estate aren't as dazzling as they look, once you
account for expenses. Maintenance costs typically run at about 1% of a home's value
annually, in addition to insurance and taxes. If you remodel, the most you can expect to
recoup is about 80%. You have to pay steep fees when you buy (up to 3% in closing costs)
and sell (up to 6% for realtor fees).
What to do: This doesn't mean you have to rent, just that you should have modest
expectations for your house as a wealth builder. There are still financial pluses. First, owning a
house gives you a hedge against rising values in your own community so that you don't risk
being priced out as rents go up. (Ask a New Yorker about that.) Second, a traditional 30-year
mortgage acts as what economists call a "commitment device," or a tool that forces you to
save. Instead of writing a check to a landlord, you gradually pay off principal. At the end, you
own a house. Aside from your 401(k), no other asset enforces such discipline.
Rule No. 6: Diversification
Old thinking: A diversified portfolio lowers your risk.
New rule: Diversification won't always save you - and you need more of it than you think.
Diversification hasn't stopped you from getting hurt in this downturn. Both U.S. and foreign
stocks are deep in the red. Holding bonds did cushion your losses, but most kinds of bonds still
declined. What happened?
Jeremy Grantham, chief investment strategist at GMO, observed back in 2007 that we had a
bubble not just in one or two kinds of assets, but in risk. Investors around the world were so
confident, and so hungry for even a little extra return, that they were throwing money at
anything that might deliver. Now that the risk bubble has burst, all those investors want now is
the safety of U.S. Treasuries. So everything has moved roughly in sync, both up and down, for
a few years.
Bear in mind, though, that these times are, to say the least, unusual. Over a longer period - as
little as a decade - diversification still looks effective. While large U.S. stocks are down the
past 10 years, U.S. corporate bonds earned 4.6% a year for the same period.
But in a global economy where money moves quickly, you have to work harder at
diversification than before.
What to do: To ensure you are diversified, you don't have to go out and buy 16 new mutual
funds. First, look under the hood of the funds you have to see if you already own some of those
assets. An easy way to do so is to plug your holdings into Morningstar.com's Instant X-Ray tool.
And buy funds that kill two birds with one stone. The T. Rowe Price International Bond fund,
for example, invests up to 20% of its assets in emerging markets and the rest in developed
countries. Put that together with a high-yield fund and a broad U.S. bond fund, and you'll own
most of the bond universe.
Rule No. 7: Retirement
Old thinking: Retiring early is a prize.
New rule: Retiring early is a problem.
Ever since Uncle Sam set 65 as the age you could retire and collect full Social Security
benefits (it's 66 or 67 for boomers today), workers have been trying to beat that bogey by
quitting early. And that seemed well within reach earlier in this decade after a bull market that
gave workers confidence that their money could work for them rather than the other way
around.
But the reality of early retirement, even before the stock market's sickening plunge, was never
quite that rosy. More than half of early retirees leave work before they intended, and of those,
nine in 10 depart because they get sick or are downsized.
And now the financial prospects for those who had a shot at a secure early retirement have
dimmed: Long-tenured workers nearing retirement have seen their 401(k) accounts shrink an
average of 30% over the past 14 months, according to EBRI. There's no way around it: The
numbers require you to rethink your plans.
What to do: "By delaying retirement just one year you could increase your annual retirement
income by 9%," says Richard Johnson, senior fellow at the Urban Institute. If you can hang on
to your current high-paying post, great. The reality, of course, is that in an era of harsh cost
cutting, well-paid older workers are more vulnerable. And you might not want to stick it out any
longer anyway if the severance is decent. But there's much to be gained from finding another
job, even if it's a lower-paid or part-time position. If you can earn enough to avoid collecting
Social Security benefits early or dipping into your retirement accounts, research by T. Rowe
Price shows, you'll barely feel a hit to your income when you do retire. If your new job comes
with health benefits, so much the better. The average health-care tab for an early retiree
before he is eligible for Medicare runs to $8,500 a year, says an AARP study.
Despite all those benefits, if you are still many years away from the retire-or-work decision, you
should think of working longer as Plan B. As we noted, you won't have complete control over
your ability to work - your health or the job market could make it difficult. That means you
can't afford to assume that you'll just work a few more years if things go wrong. You will still
have to stick to rules 1 through 6.
CHARGES FROM YOUR BANKS THAT HURT YOUR WALLETE TO KNOW ABOUT???
Ten sneaky bank fees that sting unsuspecting consumers
Banking and credit-card consumers need to keep their guard up as financial institutions increasingly impose new fees and
charges to balance their books in the wake of the continued economic downturn.
Banks and card companies have gone on the offensive in advance of proposed new consumer financial-products
protections that the Obama administration is asking Congress to enact. For many consumers, that could mean an
unexpected sting on monthly bills.
"The fee income is becoming increasingly more important as interest income is falling as a percent of total revenues,"
says Bob Hammer, CEO of R.K. Hammer, a bank-card advisory firm.
Late fees, loan origination, over-the-limit and overdraft charges, for example, helped generate a hefty 53% of banking
industry income in 2008, according to the Hammer firm. That's up from 35% of income in 1995.
At $19 billion, credit-card penalty fees alone are nearly 80% more than what they were in 2003.
Overdraft charges are becoming increasingly more lucrative too. The average bounced check fee is $28.95, a rate that
rises every year, according to Greg McBride, senior analyst at Bankrate.com. That's for the first one. Most banks have a
tiered structure in which the fees for subsequent overdrafts rise to $33 or $35 if you overdraw two, three or four times.
"The best defense to that is what kind of habits can consumers change so that they're not hostage to those fees," Mr.
McBride says.
Banks see plenty of room to grow revenue from those fees and the pressure is on for them to do so.
"If there's a way to create and use a fee, it will happen," said Adam Levine, chairman of Credit.com. "These guys have
never met a fee they didn't like."
The fees aren't necessarily bad, consumer advocates say, as long as they are reasonable: There's a whole lot more
involved in a loan origination, for example, than there is using an ATM. But Mr. Levine says that banks are drawing wide
margins around what's considered "reasonable."
"Bigger banks tend to be more fee-centric than small banks do," Mr. Levine says. "Big banks will tell you how friendly they
are, but small banks tend to be more consumer friendly."
Remember this: It's always worth the time to pick up the phone and ask for a pass on the fees. No bank is going to advertise
that it waives fees on a regular basis, but many of them do when asked --nicely, of course.
Here are 10 fees you especially need to keep a close eye on:
1. Overdraft. Should you unknowingly bounce a check, you could be charged a multitude of times before finding out and
balancing the account. Many consumers argue that banks should deny them cash at the ATM if it's going to overdraw the
account.
2. Deposit returned. If a check deposited in your account bounces, you're charged a fee. Word to the wise: accept checks
only from trusted sources.
3. Checking. This is the privilege-of-using-your-own-money charge that many banks did away with years ago. But charges
are starting to creep back into the system, experts warn. Consumers should not assume their checking accounts are fee-free
-- or if they are, that they will continue to be infinitum. "The type of checking account to now look for is one that does not
have a monthly service charge, minimum balance requirement or limit on the number of transactions you can make," says
Bankrate's Mr. McBride.
4. Teller. Banks drew fire from consumers in the 1990s when they tried charging a fee if human interaction occurred when
depositing or withdrawing money. There are scattered reports of these fees popping up, mostly now in the form of
"excessive" use of tellers. Some banks, for example, will give you two free teller visits a month, but charge you for extras.
5. Inquiries. This is the phone version of teller fees. Make a call about your account, a question about a charge or to order
a new book of checks and you could get hit with this service fee. "These are the routine fees that month after month can
really have a significant impact on your bottom line," Mr. McBride says.
6. Closing accounts. Consider this a punitive fee. Many banks will charge you a fee if you close an account within 90 days
-- and sometimes within six months -- of opening it.
7. Credit cards. Late fees and over-limit charges are already steep but could go higher. The new legislation will put caps
on some of those fees and on how they're charged against old and new balances. But until then, expect to see them grow.
Grace periods also are expected to end or be severely restricted.
8. Annual. In the early days of credit cards, issuers charged consumers a yearly fee for the right to charge. Competition
drove most away, but it looks like they may make a comeback. "Read your mail," Mr. Hammer says. "If you get something
from the bank, it's usually because they're making a change. Find out what it is."
9. Currency conversions. Got extra euros from a recent trip that you want converted to dollars? It will cost you. These are
fees that are on an upswing too.
10. ATMs. If you use an ATM that doesn't belong to your bank or has an agreement with your bank you could get whacked
twice, once by your bank and again by the ATM's owner. And the bite is getting bigger.
Ten sneaky bank fees that sting unsuspecting consumers
Banking and credit-card consumers need to keep their guard up as financial institutions increasingly impose new fees and
charges to balance their books in the wake of the continued economic downturn.
Banks and card companies have gone on the offensive in advance of proposed new consumer financial-products
protections that the Obama administration is asking Congress to enact. For many consumers, that could mean an
unexpected sting on monthly bills.
"The fee income is becoming increasingly more important as interest income is falling as a percent of total revenues,"
says Bob Hammer, CEO of R.K. Hammer, a bank-card advisory firm.
Late fees, loan origination, over-the-limit and overdraft charges, for example, helped generate a hefty 53% of banking
industry income in 2008, according to the Hammer firm. That's up from 35% of income in 1995.
At $19 billion, credit-card penalty fees alone are nearly 80% more than what they were in 2003.
Overdraft charges are becoming increasingly more lucrative too. The average bounced check fee is $28.95, a rate that
rises every year, according to Greg McBride, senior analyst at Bankrate.com. That's for the first one. Most banks have a
tiered structure in which the fees for subsequent overdrafts rise to $33 or $35 if you overdraw two, three or four times.
"The best defense to that is what kind of habits can consumers change so that they're not hostage to those fees," Mr.
McBride says.
Banks see plenty of room to grow revenue from those fees and the pressure is on for them to do so.
"If there's a way to create and use a fee, it will happen," said Adam Levine, chairman of Credit.com. "These guys have
never met a fee they didn't like."
The fees aren't necessarily bad, consumer advocates say, as long as they are reasonable: There's a whole lot more
involved in a loan origination, for example, than there is using an ATM. But Mr. Levine says that banks are drawing wide
margins around what's considered "reasonable."
"Bigger banks tend to be more fee-centric than small banks do," Mr. Levine says. "Big banks will tell you how friendly they
are, but small banks tend to be more consumer friendly."
Remember this: It's always worth the time to pick up the phone and ask for a pass on the fees. No bank is going to advertise
that it waives fees on a regular basis, but many of them do when asked --nicely, of course.
Here are 10 fees you especially need to keep a close eye on:
1. Overdraft. Should you unknowingly bounce a check, you could be charged a multitude of times before finding out and
balancing the account. Many consumers argue that banks should deny them cash at the ATM if it's going to overdraw the
account.
2. Deposit returned. If a check deposited in your account bounces, you're charged a fee. Word to the wise: accept checks
only from trusted sources.
3. Checking. This is the privilege-of-using-your-own-money charge that many banks did away with years ago. But charges
are starting to creep back into the system, experts warn. Consumers should not assume their checking accounts are fee-free
-- or if they are, that they will continue to be infinitum. "The type of checking account to now look for is one that does not
have a monthly service charge, minimum balance requirement or limit on the number of transactions you can make," says
Bankrate's Mr. McBride.
4. Teller. Banks drew fire from consumers in the 1990s when they tried charging a fee if human interaction occurred when
depositing or withdrawing money. There are scattered reports of these fees popping up, mostly now in the form of
"excessive" use of tellers. Some banks, for example, will give you two free teller visits a month, but charge you for extras.
5. Inquiries. This is the phone version of teller fees. Make a call about your account, a question about a charge or to order
a new book of checks and you could get hit with this service fee. "These are the routine fees that month after month can
really have a significant impact on your bottom line," Mr. McBride says.
6. Closing accounts. Consider this a punitive fee. Many banks will charge you a fee if you close an account within 90 days
-- and sometimes within six months -- of opening it.
7. Credit cards. Late fees and over-limit charges are already steep but could go higher. The new legislation will put caps
on some of those fees and on how they're charged against old and new balances. But until then, expect to see them grow.
Grace periods also are expected to end or be severely restricted.
8. Annual. In the early days of credit cards, issuers charged consumers a yearly fee for the right to charge. Competition
drove most away, but it looks like they may make a comeback. "Read your mail," Mr. Hammer says. "If you get something
from the bank, it's usually because they're making a change. Find out what it is."
9. Currency conversions. Got extra euros from a recent trip that you want converted to dollars? It will cost you. These are
fees that are on an upswing too.
10. ATMs. If you use an ATM that doesn't belong to your bank or has an agreement with your bank you could get whacked
twice, once by your bank and again by the ATM's owner. And the bite is getting bigger.
Five ways to evaluate how your bank is serving you in this economy.
Talk about headaches. Having to come up $75 billion in new capital is a stress test in itself for the banks deemed to
be in the worst shape by the Federal Reserve. Compared with that, resolving issues you're having with your own bank
seems like a walk in the park. Still, dealing with financial institutions nowadays can be a major source of irritation. Ask
these questions to determine how well your bank is serving you -- and learn what to do to lower your own stress level:
Are my deposits safe?
As long as your bank is insured by the Federal Deposit Insurance Corp., your money is guaranteed -- up to $250,000
per depositor. That's the case even if you have an account with Bank of America, which tops the bad-bank list and
needs to raise $34 billion in capital. Call 877-275-3342 to verify that your bank is covered by the FDIC,
which is backed by the full faith and credit of the U.S. government. The $250,000 limit was scheduled to revert to the
previous $100,000 limit after December 31, 2009, but Congress just passed a bill that extends it to 2013.
FDIC insurance covers checking accounts, savings accounts, money-market accounts, certificates of deposit and
retirement accounts. You can insure substantially more than $250,000 if you arrange ownership of the accounts
properly. Use the FDIC's Electronic Deposit Insurance estimator to figure out if the total amount of your deposits is
covered.
Credit-union deposits up to $250,000 are protected by the National Credit Union Share Insurance Fund. The National
Credit Union Administration, the government agency that oversees credit unions, provides a calculator to help you
determine whether the funds deposited in your credit union are insured.
Are my savings earning enough interest?
The average interest rate on bank money-market deposit accounts is a paltry 0.40%. But you can earn significantly
more by switching to a high-paying account with an online bank, such as Ally Bank (formerly known as GMAC Bank),
in Utah. If you know you won't need your money for a while, you can earn 2.20% with a six-month certificate of
deposit at Corus Bank, in Illinois, or 2.8% with a 12-month CD at Ally Bank.
Will my bank lend me money?
Most lenders have tightened their standards, but money is available if you spiff up your credit. Today you'll probably
need a credit score of about 730 to qualify for the best rates on a mortgage.
If you can't come up with 20% for a down payment, you may have to pay a higher interest rate or additional closing
fees. Check with your local community bank or credit union -- they're advertising their willingness to make loans and
may be able to offer you a better deal than the mega-banks.
If you're applying for a loan, prepare in advance by checking your credit report. The 2009 Consumer Financial
Literacy Survey by the National Foundation for Credit Counseling showed that 144 million people had not ordered a
copy of their credit report in the past year.
You can order a free credit report from each of the three credit bureaus at http://www.annualcreditreport.com/. For an
additional $7.95, you can get your FICO credit score with your Equifax report. At http://www.myfico.com/, you can
see how your credit score affects your monthly payment for a home mortgage or car loan.
Am I being hit with more fees for ordinary transactions?
Financially shaky banks need to raise cash however they can. But that doesn't mean you have to pay up. Open an
account at a bank with a large ATM network so that it's easy to find a convenient ATM and avoid the $4 fee you must
pay whenever you use another bank's ATM. Or switch to a credit union -- such as Navy Federal Credit Union -- that
participates in a surcharge-free ATM network. Online banks, such as UFBDirect.com, don't charge ATM fees and will
reimburse you up to $4.50 a month for ATM charges from other banks.
Overdraft fees generated $17.5 billion in income for banks in 2007, according to the Center for Responsible Lending.
You can limit your share if you link your checking account to a savings account so that the bank transfers your funds
from one account to the other. You'll be charged a transfer fee (typically $5) rather than an overdraft fee ($ 25 to $27
is the median at community banks and credit unions, $33 at mega-banks).
Has the bank raised the rate on my credit card?
You're not alone. Banks that have to firm up their balance sheets are raising interest rates, lowering credit limits or
canceling cards outright for customers they deem to be too risky.
If your card issuer changes the terms and conditions of your credit-card agreement, call the toll-free number on the
card and ask to have the changes rescinded. If a lower credit limit means that you are using more than half of your
available credit, try to pay down your balance as quickly as possible so that your credit score doesn't drop. You can
reject the new terms, but closing the account will affect your credit score, especially if you have used the card for a
long time.
If you decide the new rate is onerous and want to close the account, look for a low-rate balance-transfer offer at
http://www.lowcards.com/ or http://www.billshrink.com/. Most 0% balance-transfer offers come with a fee of 3% of the
amount you transfer. One exception is Pulaski Bank, which has no fee for its six-month offer. The card, which carries
a fixed interest rate of 6.5%, does have a $35 annual fee. But that's a small price to pay for its low interest rate.
Talk about headaches. Having to come up $75 billion in new capital is a stress test in itself for the banks deemed to
be in the worst shape by the Federal Reserve. Compared with that, resolving issues you're having with your own bank
seems like a walk in the park. Still, dealing with financial institutions nowadays can be a major source of irritation. Ask
these questions to determine how well your bank is serving you -- and learn what to do to lower your own stress level:
Are my deposits safe?
As long as your bank is insured by the Federal Deposit Insurance Corp., your money is guaranteed -- up to $250,000
per depositor. That's the case even if you have an account with Bank of America, which tops the bad-bank list and
needs to raise $34 billion in capital. Call 877-275-3342 to verify that your bank is covered by the FDIC,
which is backed by the full faith and credit of the U.S. government. The $250,000 limit was scheduled to revert to the
previous $100,000 limit after December 31, 2009, but Congress just passed a bill that extends it to 2013.
FDIC insurance covers checking accounts, savings accounts, money-market accounts, certificates of deposit and
retirement accounts. You can insure substantially more than $250,000 if you arrange ownership of the accounts
properly. Use the FDIC's Electronic Deposit Insurance estimator to figure out if the total amount of your deposits is
covered.
Credit-union deposits up to $250,000 are protected by the National Credit Union Share Insurance Fund. The National
Credit Union Administration, the government agency that oversees credit unions, provides a calculator to help you
determine whether the funds deposited in your credit union are insured.
Are my savings earning enough interest?
The average interest rate on bank money-market deposit accounts is a paltry 0.40%. But you can earn significantly
more by switching to a high-paying account with an online bank, such as Ally Bank (formerly known as GMAC Bank),
in Utah. If you know you won't need your money for a while, you can earn 2.20% with a six-month certificate of
deposit at Corus Bank, in Illinois, or 2.8% with a 12-month CD at Ally Bank.
Will my bank lend me money?
Most lenders have tightened their standards, but money is available if you spiff up your credit. Today you'll probably
need a credit score of about 730 to qualify for the best rates on a mortgage.
If you can't come up with 20% for a down payment, you may have to pay a higher interest rate or additional closing
fees. Check with your local community bank or credit union -- they're advertising their willingness to make loans and
may be able to offer you a better deal than the mega-banks.
If you're applying for a loan, prepare in advance by checking your credit report. The 2009 Consumer Financial
Literacy Survey by the National Foundation for Credit Counseling showed that 144 million people had not ordered a
copy of their credit report in the past year.
You can order a free credit report from each of the three credit bureaus at http://www.annualcreditreport.com/. For an
additional $7.95, you can get your FICO credit score with your Equifax report. At http://www.myfico.com/, you can
see how your credit score affects your monthly payment for a home mortgage or car loan.
Am I being hit with more fees for ordinary transactions?
Financially shaky banks need to raise cash however they can. But that doesn't mean you have to pay up. Open an
account at a bank with a large ATM network so that it's easy to find a convenient ATM and avoid the $4 fee you must
pay whenever you use another bank's ATM. Or switch to a credit union -- such as Navy Federal Credit Union -- that
participates in a surcharge-free ATM network. Online banks, such as UFBDirect.com, don't charge ATM fees and will
reimburse you up to $4.50 a month for ATM charges from other banks.
Overdraft fees generated $17.5 billion in income for banks in 2007, according to the Center for Responsible Lending.
You can limit your share if you link your checking account to a savings account so that the bank transfers your funds
from one account to the other. You'll be charged a transfer fee (typically $5) rather than an overdraft fee ($ 25 to $27
is the median at community banks and credit unions, $33 at mega-banks).
Has the bank raised the rate on my credit card?
You're not alone. Banks that have to firm up their balance sheets are raising interest rates, lowering credit limits or
canceling cards outright for customers they deem to be too risky.
If your card issuer changes the terms and conditions of your credit-card agreement, call the toll-free number on the
card and ask to have the changes rescinded. If a lower credit limit means that you are using more than half of your
available credit, try to pay down your balance as quickly as possible so that your credit score doesn't drop. You can
reject the new terms, but closing the account will affect your credit score, especially if you have used the card for a
long time.
If you decide the new rate is onerous and want to close the account, look for a low-rate balance-transfer offer at
http://www.lowcards.com/ or http://www.billshrink.com/. Most 0% balance-transfer offers come with a fee of 3% of the
amount you transfer. One exception is Pulaski Bank, which has no fee for its six-month offer. The card, which carries
a fixed interest rate of 6.5%, does have a $35 annual fee. But that's a small price to pay for its low interest rate.
How to Buy Real Estate Properties at Auction ???
Finding and filing properties
Develop a system to keep track of properties that interest you. A good tracking system is important since
most successful auction buyers pursue several properties sometimes over a period of several months.
After you find a property online, it's a good idea to drive by the property to get a better idea of the
property's condition and the type of neighborhood. For some buyers and investors, driving by the property
has also facilitated a casual meeting with the owner (you may be able to still work out a last-minute deal
before the auction) or yielded a wealth of unexpected information from a talkative neighbor.
Confirming the auction status, location and bidding procedure
After a property is scheduled for auction, the owner has a chance (typically less than a month) to stop the
auction by paying the amount owed to the foreclosing lender. It's also not uncommon for auctions to be
postponed without a new date being published. Although cancellations and postponements are
announced at the time and location of the originally scheduled auction, you can call the trustee to find out
beforehand.
Most auctions are at a public place in the same county where the property is located. In many states, all
the auctions in each county are at the same location. The auction location is usually listed online (e.g.
RealtyTrac) or you can typically get the location from the trustee or the county clerk. If you call the county
clerk, make sure you clarify that you are looking for the location of mortgage foreclosure auctions, not tax
foreclosure auctions.
The bidding procedure varies from state to state, so you should become familiar with the procedure in
your area before bidding at an auction. In some states, bidders are required to bring the full amount they
want to bid in the form of cash or cashier's check to the auction. In other states, bidders are required to
bring a certain percentage (10 percent is common) of the bid amount to the auction and pay the remainder
of the amount within a certain timeframe. If you get a friendly representative when you call the trustee,
you might be able to get information about how the bidding works in your area, but in most cases you'll
need to educate yourself. You could also contact a local real estate agent or attorney in your area. Of
course, the best education will come from simply observing a local auction.
Researching the potential bargain
You need to find out as much as you can about the estimated market value of the property, how much is
owed on the property and if the owner has any other liens against the property. If there are outstanding
liens on the property, the winning bidder at the auction may be responsible to satisfy these liens in some
cases, so it's important to check for any liens and the priority of the liens before you bid at the auction. A
real estate attorney or title company can check for liens, or you can check directly with county records.
The priority of a lien is usually determined by the date it was placed on the property. So a first mortgage
will usually have the first priority, and all other liens will be considered junior liens. In most states, the
public auction clears out any junior liens, but there are exceptions such as tax liens, which typically will
continue to be in effect after the auction.
The opening bid at the auction is based on the total amount owed to the foreclosing lender and may
include fees incurred because of the foreclosure proceedings. If no one bids above that amount, the
foreclosing lender will take possession of the property. It's important to know this amount so you can
determine if the auction represents a potential bargain purchase when the opening bid is compared to the
property's market value.
Determining your bid
Based on all the factors used to determine the potential bargain - and your financial capability - you'll need
to determine how much you can and should bid at the auction.
Determining your bid amount is more important in states where bidders are required to bring the full
amount in cash or cashier's check to the auction. You won't even be qualified to bid if you don't meet that
requirement. If you don't have that type of cash lying around, you have a couple options. If you own a
home, you might be able to take out a home equity line of credit, which is a cash loan. If you can't secure
a cash loan, you may consider buying a pre-foreclosure or bank-owned property, which usually require
only a regular mortgage loan secured by the property being purchased.
It's also important to determine the bid amount even in states where you don't need to bring the full
amount to the auction. By setting a firm ceiling for your bid, you'll avoid getting caught up in the heady
auction atmosphere and overbidding, which can result in little or no bargain for you. Also, if you're not
able to pay the remainder of the bid within the time frame stipulated by state law, the deposit you paid at
the auction is often nonrefundable.
A reasonable purchase amount at auction is at least 20 percent below full market value, and much better
deals are often possible. Other factors to consider are the rate of real estate appreciation in the area and
the potential for increasing the property's value by making repairs and improvements.
Bidding at the auction
Call the trustee the day before or the day of the auction to check one last time if the auction has been
canceled or postponed. If an auction is postponed, the trustee should provide the new auction date.
Arrive at the auction location early and locate the auctioneer as quickly as possible. Bidding at an
auction can be intimidating, especially if you've never done it before. Take as many cues from the other
participants as you can, but don't let them dictate how much you bid. You may encounter investors who
attend many auctions every month and who don't necessarily appreciate new competition.
Taking ownership
If you are the winning bidder, make sure you get the necessary documents from the auctioneer to verify
that you are the winning bidder. Clarify with the auctioneer and a real estate attorney what further steps
need to be made before you take ownership and possession of the property. In some states, ownership
can be transferred immediately or within a few days. In other states, you may need to wait a month or
more for the sale to be confirmed by a court. Some states have redemption periods for the owner, in
which case the owner can buy the property back from you if they pay the full amount paid at the auction,
plus applicable fees. You should avoid spending money on repairs or improvements during the
redemption period.
If the trustee does not evict the current owners, you may be responsible to do this. If eviction is
necessary, you can contact a local real estate attorney or the county sheriff for the proper procedure.
Finding and filing properties
Develop a system to keep track of properties that interest you. A good tracking system is important since
most successful auction buyers pursue several properties sometimes over a period of several months.
After you find a property online, it's a good idea to drive by the property to get a better idea of the
property's condition and the type of neighborhood. For some buyers and investors, driving by the property
has also facilitated a casual meeting with the owner (you may be able to still work out a last-minute deal
before the auction) or yielded a wealth of unexpected information from a talkative neighbor.
Confirming the auction status, location and bidding procedure
After a property is scheduled for auction, the owner has a chance (typically less than a month) to stop the
auction by paying the amount owed to the foreclosing lender. It's also not uncommon for auctions to be
postponed without a new date being published. Although cancellations and postponements are
announced at the time and location of the originally scheduled auction, you can call the trustee to find out
beforehand.
Most auctions are at a public place in the same county where the property is located. In many states, all
the auctions in each county are at the same location. The auction location is usually listed online (e.g.
RealtyTrac) or you can typically get the location from the trustee or the county clerk. If you call the county
clerk, make sure you clarify that you are looking for the location of mortgage foreclosure auctions, not tax
foreclosure auctions.
The bidding procedure varies from state to state, so you should become familiar with the procedure in
your area before bidding at an auction. In some states, bidders are required to bring the full amount they
want to bid in the form of cash or cashier's check to the auction. In other states, bidders are required to
bring a certain percentage (10 percent is common) of the bid amount to the auction and pay the remainder
of the amount within a certain timeframe. If you get a friendly representative when you call the trustee,
you might be able to get information about how the bidding works in your area, but in most cases you'll
need to educate yourself. You could also contact a local real estate agent or attorney in your area. Of
course, the best education will come from simply observing a local auction.
Researching the potential bargain
You need to find out as much as you can about the estimated market value of the property, how much is
owed on the property and if the owner has any other liens against the property. If there are outstanding
liens on the property, the winning bidder at the auction may be responsible to satisfy these liens in some
cases, so it's important to check for any liens and the priority of the liens before you bid at the auction. A
real estate attorney or title company can check for liens, or you can check directly with county records.
The priority of a lien is usually determined by the date it was placed on the property. So a first mortgage
will usually have the first priority, and all other liens will be considered junior liens. In most states, the
public auction clears out any junior liens, but there are exceptions such as tax liens, which typically will
continue to be in effect after the auction.
The opening bid at the auction is based on the total amount owed to the foreclosing lender and may
include fees incurred because of the foreclosure proceedings. If no one bids above that amount, the
foreclosing lender will take possession of the property. It's important to know this amount so you can
determine if the auction represents a potential bargain purchase when the opening bid is compared to the
property's market value.
Determining your bid
Based on all the factors used to determine the potential bargain - and your financial capability - you'll need
to determine how much you can and should bid at the auction.
Determining your bid amount is more important in states where bidders are required to bring the full
amount in cash or cashier's check to the auction. You won't even be qualified to bid if you don't meet that
requirement. If you don't have that type of cash lying around, you have a couple options. If you own a
home, you might be able to take out a home equity line of credit, which is a cash loan. If you can't secure
a cash loan, you may consider buying a pre-foreclosure or bank-owned property, which usually require
only a regular mortgage loan secured by the property being purchased.
It's also important to determine the bid amount even in states where you don't need to bring the full
amount to the auction. By setting a firm ceiling for your bid, you'll avoid getting caught up in the heady
auction atmosphere and overbidding, which can result in little or no bargain for you. Also, if you're not
able to pay the remainder of the bid within the time frame stipulated by state law, the deposit you paid at
the auction is often nonrefundable.
A reasonable purchase amount at auction is at least 20 percent below full market value, and much better
deals are often possible. Other factors to consider are the rate of real estate appreciation in the area and
the potential for increasing the property's value by making repairs and improvements.
Bidding at the auction
Call the trustee the day before or the day of the auction to check one last time if the auction has been
canceled or postponed. If an auction is postponed, the trustee should provide the new auction date.
Arrive at the auction location early and locate the auctioneer as quickly as possible. Bidding at an
auction can be intimidating, especially if you've never done it before. Take as many cues from the other
participants as you can, but don't let them dictate how much you bid. You may encounter investors who
attend many auctions every month and who don't necessarily appreciate new competition.
Taking ownership
If you are the winning bidder, make sure you get the necessary documents from the auctioneer to verify
that you are the winning bidder. Clarify with the auctioneer and a real estate attorney what further steps
need to be made before you take ownership and possession of the property. In some states, ownership
can be transferred immediately or within a few days. In other states, you may need to wait a month or
more for the sale to be confirmed by a court. Some states have redemption periods for the owner, in
which case the owner can buy the property back from you if they pay the full amount paid at the auction,
plus applicable fees. You should avoid spending money on repairs or improvements during the
redemption period.
If the trustee does not evict the current owners, you may be responsible to do this. If eviction is
necessary, you can contact a local real estate attorney or the county sheriff for the proper procedure.
How to Buy Bank Owned Real Estate Properties??
Finding and filing properties
Develop a system to keep track of properties that interest you. A good tracking system is
important as most foreclosure buyers pursue many properties, sometimes over a period of
several months.
After you find a property online, it's a good idea to drive by the property to get a better idea of
the property's condition and the type of neighborhood. Some buyers and investors who have
driven by the property have found notices posted there that provide more information about the
bank who now owns the property. You'll also see if the property is listed with a real estate agent.
Researching the potential bargain
When you find a property that interests you, perform some preliminary research to make sure
the property represents a good bargain opportunity. Your research should not take more than
one or two days because you do not want to delay too long before contacting the foreclosing
bank. The key pieces of information you need to gather are the estimated market value of the
property and the bank's break-even amount.
The bank's break-even amount includes the unpaid balance of the loan, any fees and costs
incurred during the foreclosure process and any other liens the bank had to pay off to take
ownership of the property. The unpaid loan balance plus any foreclosure fees and costs are
included in the opening bid.
Contacting the bank
You or your real estate agent should initiate contact with the bank to express your interest in
the property. Before you expend the time and effort to contact the bank, make sure you're fully
prepared to buy.
At this stage of foreclosure it's more likely the property will be listed for sale on the Multiple
Listing Service (MLS), so make sure you or your agent checks the MLS. If the property is listed
for sale, you can contact the listing agent directly. Keep in mind that the potential bargain
often diminishes if a listing agent is involved.
If the property is not listed with a real estate agent, you'll need to take some pro-active steps to
contact the foreclosing bank directly. The bank's main focus is not selling property, which
means you may need to do some digging to find the department or person at the bank who
manages repossessed property.
When you call the foreclosing bank, you should ask for the REO (Real Estate Owned)
department, bank-owned homes department or asset management department. Be patient and
persistent at this point because it may take some time to get through to this department.
If you have trouble contacting the bank by phone, another option is to overnight or fax a letter
to the bank stating your interest in the property. Some buyers and investors include a check
made out to a local escrow company to get the bank's attention. This check is usually a small
percentage of the total purchase price and should be refunded if no transaction takes place,
but it shows you're a serious buyer.
Negotiating a purchase agreement
Once you make contact with the bank's asset manager or REO officer, you should arrange to
walk through the property (with your agent if applicable) to make sure it fits your criteria as a
buyer. If both you and the bank agree to proceed, you should start negotiating the terms of the
purchase agreement. A real estate agent can be a valuable resource during the negotiating
process.
If state law allows a redemption period for the owner after the bank takes ownership of the
property, you may have to wait until the end of the redemption period - several weeks or several
months, depending on the state. During the redemption period the owner can regain ownership
of the property by paying the total amount owed to the bank plus any applicable foreclosure
expenses.
The bank's primary goal is to at least break even on all the costs that it has sunk into the
property. That includes the unpaid balance of the loan, the expenses associated with the
foreclosure proceedings, other liens and repairs to the property. Your goal as a buyer is to
purchase the property below market value, minus any estimated repair costs. This is often
possible if you contact the bank quickly and are a prepared buyer ready to make a purchase.
In the recent real estate market, buying directly from the bank has not been as profitable as
buying during pre-foreclosure or at the public auction. That's not to say there aren't good deals
available. And many buyers and investors prefer to buy directly from the bank because it's
typically a more predictable process than buying during pre-foreclosure or at a public auction.
You'll probably get a better bargain if you're willing to buy the property "as is," meaning you're
willing to buy the property in need of repairs disclosed by the seller. Of course you'll still want
to figure estimated repair costs into your final purchase offer.
Banks may be more willing to sell at a below-market price if they have a glut of foreclosures,
which are non-performing assets from their perspective. If you're an investor or buyer looking for
more properties to purchase, you should let the asset manager or REO officer know to contact
you in the future if the bank needs to quickly unload foreclosure properties.
Closing the deal
Once you've arrived at an agreement with the foreclosing bank, you can put the agreement in
writing. You should have a local real estate agent or real estate attorney help if you're not
familiar with how to draw up a purchase agreement.
Any purchase agreement should make closing of the deal contingent on a full title search
conducted by a title company or attorney. The purchase agreement should also allow for a
professional inspection of the property before closing the deal.
An escrow company, who acts as a third party, can manage the transfer of money and property
ownership. Assuming that you have your financing secured, this should be a fairly smooth
process.
Finding and filing properties
Develop a system to keep track of properties that interest you. A good tracking system is
important as most foreclosure buyers pursue many properties, sometimes over a period of
several months.
After you find a property online, it's a good idea to drive by the property to get a better idea of
the property's condition and the type of neighborhood. Some buyers and investors who have
driven by the property have found notices posted there that provide more information about the
bank who now owns the property. You'll also see if the property is listed with a real estate agent.
Researching the potential bargain
When you find a property that interests you, perform some preliminary research to make sure
the property represents a good bargain opportunity. Your research should not take more than
one or two days because you do not want to delay too long before contacting the foreclosing
bank. The key pieces of information you need to gather are the estimated market value of the
property and the bank's break-even amount.
The bank's break-even amount includes the unpaid balance of the loan, any fees and costs
incurred during the foreclosure process and any other liens the bank had to pay off to take
ownership of the property. The unpaid loan balance plus any foreclosure fees and costs are
included in the opening bid.
Contacting the bank
You or your real estate agent should initiate contact with the bank to express your interest in
the property. Before you expend the time and effort to contact the bank, make sure you're fully
prepared to buy.
At this stage of foreclosure it's more likely the property will be listed for sale on the Multiple
Listing Service (MLS), so make sure you or your agent checks the MLS. If the property is listed
for sale, you can contact the listing agent directly. Keep in mind that the potential bargain
often diminishes if a listing agent is involved.
If the property is not listed with a real estate agent, you'll need to take some pro-active steps to
contact the foreclosing bank directly. The bank's main focus is not selling property, which
means you may need to do some digging to find the department or person at the bank who
manages repossessed property.
When you call the foreclosing bank, you should ask for the REO (Real Estate Owned)
department, bank-owned homes department or asset management department. Be patient and
persistent at this point because it may take some time to get through to this department.
If you have trouble contacting the bank by phone, another option is to overnight or fax a letter
to the bank stating your interest in the property. Some buyers and investors include a check
made out to a local escrow company to get the bank's attention. This check is usually a small
percentage of the total purchase price and should be refunded if no transaction takes place,
but it shows you're a serious buyer.
Negotiating a purchase agreement
Once you make contact with the bank's asset manager or REO officer, you should arrange to
walk through the property (with your agent if applicable) to make sure it fits your criteria as a
buyer. If both you and the bank agree to proceed, you should start negotiating the terms of the
purchase agreement. A real estate agent can be a valuable resource during the negotiating
process.
If state law allows a redemption period for the owner after the bank takes ownership of the
property, you may have to wait until the end of the redemption period - several weeks or several
months, depending on the state. During the redemption period the owner can regain ownership
of the property by paying the total amount owed to the bank plus any applicable foreclosure
expenses.
The bank's primary goal is to at least break even on all the costs that it has sunk into the
property. That includes the unpaid balance of the loan, the expenses associated with the
foreclosure proceedings, other liens and repairs to the property. Your goal as a buyer is to
purchase the property below market value, minus any estimated repair costs. This is often
possible if you contact the bank quickly and are a prepared buyer ready to make a purchase.
In the recent real estate market, buying directly from the bank has not been as profitable as
buying during pre-foreclosure or at the public auction. That's not to say there aren't good deals
available. And many buyers and investors prefer to buy directly from the bank because it's
typically a more predictable process than buying during pre-foreclosure or at a public auction.
You'll probably get a better bargain if you're willing to buy the property "as is," meaning you're
willing to buy the property in need of repairs disclosed by the seller. Of course you'll still want
to figure estimated repair costs into your final purchase offer.
Banks may be more willing to sell at a below-market price if they have a glut of foreclosures,
which are non-performing assets from their perspective. If you're an investor or buyer looking for
more properties to purchase, you should let the asset manager or REO officer know to contact
you in the future if the bank needs to quickly unload foreclosure properties.
Closing the deal
Once you've arrived at an agreement with the foreclosing bank, you can put the agreement in
writing. You should have a local real estate agent or real estate attorney help if you're not
familiar with how to draw up a purchase agreement.
Any purchase agreement should make closing of the deal contingent on a full title search
conducted by a title company or attorney. The purchase agreement should also allow for a
professional inspection of the property before closing the deal.
An escrow company, who acts as a third party, can manage the transfer of money and property
ownership. Assuming that you have your financing secured, this should be a fairly smooth
process.
Complete Foreclosure Overview ...
What is Foreclosure?
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership
(repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan
payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens.
The foreclosure process can end one of four ways:
The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This
grace period is also known as pre-foreclosure.
The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to
pay off the loan and avoid having a foreclosure on his or her credit history.
A third party buys the property at a public auction at the end of the pre-foreclosure period.
The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take
ownership either through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the
public auction. These properties are also known as bank-owned or REO properties (Real Estate Owned by the lender).
Foreclosure Opportunities
Pre-Foreclosure:
Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property outright. The
borrower/owner can walk away with the equity in the property and avoid a bad mark on his or her credit history. The buyer has
time to research the title and condition of the property and can realize discounts of 20-40 percent below market value.
What is Foreclosure?
Foreclosure is a process that allows a lender to recover the amount owed on a defaulted loan by selling or taking ownership
(repossession) of the property securing the loan. The foreclosure process begins when a borrower/owner defaults on loan
payments (usually mortgage payments) and the lender files a public default notice, called a Notice of Default or Lis Pendens.
The foreclosure process can end one of four ways:
The borrower/owner reinstates the loan by paying off the default amount during a grace period determined by state law. This
grace period is also known as pre-foreclosure.
The borrower/owner sells the property to a third party during the pre-foreclosure period. The sale allows the borrower/owner to
pay off the loan and avoid having a foreclosure on his or her credit history.
A third party buys the property at a public auction at the end of the pre-foreclosure period.
The lender takes ownership of the property, usually with the intent to re-sell it on the open market. The lender can take
ownership either through an agreement with the borrower/owner during pre-foreclosure or by buying back the property at the
public auction. These properties are also known as bank-owned or REO properties (Real Estate Owned by the lender).
Foreclosure Opportunities
Pre-Foreclosure:
Buying a property in pre-foreclosure involves approaching the borrower/owner and offering to buy the property outright. The
borrower/owner can walk away with the equity in the property and avoid a bad mark on his or her credit history. The buyer has
time to research the title and condition of the property and can realize discounts of 20-40 percent below market value.
How to Buy Pre-Foreclosure Properties??
Finding and filing properties
Develop a system to keep track of properties that interest you. A good
tracking system is important since most pre-foreclosure buyers pursue
many properties sometimes over a period of several months.
After you find a property online, it's a good idea to drive by the property to
get a better idea of the property's condition and the type of neighborhood.
For some buyers and investors, driving by the property facilitate a casual
meeting with the owner or yields a wealth of unexpected information from
a talkative neighbor.
Confirming pre-foreclosure status
When a property enters pre-foreclosure, the owner usually has at least 2-3
months to reinstate the property by paying off the amount in default. The
reinstatement stops the foreclosure process, so it's important to find out if
a property has been reinstated before proceeding. The best way to check if
the property has been reinstated is to call the trustee or attorney assigned
to the foreclosure. The trustee cannot typically answer questions about the
property; they can just let you know if the property is still in foreclosure or
not.
Researching the potential bargain
Find out as much as you can about the estimated market value of the
property, how much is owed on the property and if the owner has any
other liens against the property. This is all public information and you can
research on your own with the county recorder. This process should not
take more than a day or two, because you don't want to delay long before
contacting the owner in default.
Contacting the owner in default
You or your real estate agent should initiate contact with the owner to
express your interest in the property. Before you expend the time and effort
to contact the owner, make sure you're fully prepared to buy.
If the owner has decided to list the property for sale, you can simply
contact the listing agent. Once the property is listed with an agent there
may not be as much bargain potential, but you can still negotiate a good
deal because you know the owner has a limited amount of time to sell
before the bank repossess the property or sells the property at public
auction.
In most cases, the owner has not listed the property for sale, so you will
need to pro-actively contact them. In this case, contacting the owner can
be tough, but the potential bargain is greater because you'll be cutting out
the listing agent's commission.
Contact the owner by mail to start. The basic message to communicate to
the owner is that you're interested in buying the property and you want to
work out a purchase agreement that benefits both parties.
Don't be surprised if the owner does not respond to the mail immediately.
In most states, the owner has several months between the initial
foreclosure notice and the public auction. During this time the owner will
consider all the options available, including refinancing or selling. An
owner's first reaction is usually not to sell. But if no other options work
out, selling is a better option than losing the property at public auction.
Many successful pre-foreclosure buyers and investors send quite a few
postcards to properties in their area before they find an owner who is
interested. It's not uncommon to send out several postcards to the same
owner during the foreclosure process. The owner may be more interested
to sell as the auction date looms closer. If the owner doesn't respond to
postcards, some buyers and investors will try to reach the owner by
phone or in person. If you do this, be prepared for a possible rude
response as these methods of contact are more inherently confrontational.
And always keep in mind that the owner in default retains ownership
rights to the property during the pre-foreclosure period. If they are not
interested in talking with you, it's time to leave.
If the owner rejects all of your contact attempts, you may still have a
chance to purchase the property at public auction, which occurs if the
owner doesn't sell or pay off the amount owed during the pre-foreclosure
period. You could also call the trustee periodically to check if an auction
has been scheduled.
Negotiating a purchase agreement
Once you have made contact with the owner, you should meet with them
for further discussion about the property. As part of this meeting, or a later
one, you should arrange to walk through the property to make sure it
meets your criteria as a buyer.
Because owners in foreclosure may not have the money to make repairs
to their property, you might be willing to buy the property "as is." But you
still want to keep a tab of estimated repair costs and subtract them from
your purchase offer. Your willingness to put some "sweat equity" in the
property after you purchase it will increase the chances of realizing a
good bargain.
If you and the owner both agree to proceed, you need to negotiate the
terms of a purchase. These negotiations will involve you, the owner and
the foreclosing lender. A real estate agent can be a valuable resource
during the negotiating process.
If the loan in default is assumable, you may be able to pay off the amount
in default and take over payments under the current terms of that loan. If
not, you will need to pay off the full amount owed on the loan. If the
property has other liens placed on it, you'll need to make sure those are
cleared out as part of the purchase agreement. If the owner has equity in
the property above and beyond the liens, then you can offer to split the
equity with them, allowing them to walk away with cash and you to
acquire a property below market value.
Owners might be more willing to work with you if you are flexible to help
them out in creative ways that address their situation. You could offer to
let them stay in the house for a certain amount of time (possibly paying
rent) until they find a new place to stay. You could offer to pay their
housing costs for the first month or more after they leave the property. If
you're purchasing the property as an investment, you may let them stay
and pay rent until you decide to resell the house. There are myriad ways to
work out an agreement that benefits both parties. Remember, just selling
the property during pre-foreclosure allows owners to avoid a
foreclosure-marred credit history, making it easier for them to find a new
place to live.
While negotiating the purchase agreement with the owner, you should also
contact the foreclosing lender and any other lien holders. You want them
to know you plan to purchase the property and satisfy any liens against the
property. You also may be able to negotiate a lower payoff amount to
satisfy the debts owed. Since you're saving them the trouble of pursuing
and collecting the debt owed them, some foreclosing lenders and lien
holders will clear liens on a property for less than 100 percent of the
amount owed. This is another way to realize a bargain during
pre-foreclosure.
The goal for you as a buyer is to purchase a property at least 20 percent
below full market value, although better deals are often possible. When
determining the final purchase offer, you should also take into account the
rate of real estate appreciation in the area and the potential for increasing
the house's value by making repairs and improvements.
Closing the deal
Once you've arrived at an agreement with the owner in default, the
foreclosing lender and any other lien holders, you can put the agreement
in writing. If you're not familiar with how to draw up a purchase
agreement, you should have a local real estate agent or real estate
attorney help.
Any purchase agreement should make closing the deal contingent on a full
title search conducted by a title company or attorney. The purchase
agreement should also allow for a professional inspection of the property
before closing the deal.
An escrow company, who acts as a third party, can manage the transfer of
money and property ownership. Assuming that you have your financing
secured, this should be a fairly smooth process.
Finding and filing properties
Develop a system to keep track of properties that interest you. A good
tracking system is important since most pre-foreclosure buyers pursue
many properties sometimes over a period of several months.
After you find a property online, it's a good idea to drive by the property to
get a better idea of the property's condition and the type of neighborhood.
For some buyers and investors, driving by the property facilitate a casual
meeting with the owner or yields a wealth of unexpected information from
a talkative neighbor.
Confirming pre-foreclosure status
When a property enters pre-foreclosure, the owner usually has at least 2-3
months to reinstate the property by paying off the amount in default. The
reinstatement stops the foreclosure process, so it's important to find out if
a property has been reinstated before proceeding. The best way to check if
the property has been reinstated is to call the trustee or attorney assigned
to the foreclosure. The trustee cannot typically answer questions about the
property; they can just let you know if the property is still in foreclosure or
not.
Researching the potential bargain
Find out as much as you can about the estimated market value of the
property, how much is owed on the property and if the owner has any
other liens against the property. This is all public information and you can
research on your own with the county recorder. This process should not
take more than a day or two, because you don't want to delay long before
contacting the owner in default.
Contacting the owner in default
You or your real estate agent should initiate contact with the owner to
express your interest in the property. Before you expend the time and effort
to contact the owner, make sure you're fully prepared to buy.
If the owner has decided to list the property for sale, you can simply
contact the listing agent. Once the property is listed with an agent there
may not be as much bargain potential, but you can still negotiate a good
deal because you know the owner has a limited amount of time to sell
before the bank repossess the property or sells the property at public
auction.
In most cases, the owner has not listed the property for sale, so you will
need to pro-actively contact them. In this case, contacting the owner can
be tough, but the potential bargain is greater because you'll be cutting out
the listing agent's commission.
Contact the owner by mail to start. The basic message to communicate to
the owner is that you're interested in buying the property and you want to
work out a purchase agreement that benefits both parties.
Don't be surprised if the owner does not respond to the mail immediately.
In most states, the owner has several months between the initial
foreclosure notice and the public auction. During this time the owner will
consider all the options available, including refinancing or selling. An
owner's first reaction is usually not to sell. But if no other options work
out, selling is a better option than losing the property at public auction.
Many successful pre-foreclosure buyers and investors send quite a few
postcards to properties in their area before they find an owner who is
interested. It's not uncommon to send out several postcards to the same
owner during the foreclosure process. The owner may be more interested
to sell as the auction date looms closer. If the owner doesn't respond to
postcards, some buyers and investors will try to reach the owner by
phone or in person. If you do this, be prepared for a possible rude
response as these methods of contact are more inherently confrontational.
And always keep in mind that the owner in default retains ownership
rights to the property during the pre-foreclosure period. If they are not
interested in talking with you, it's time to leave.
If the owner rejects all of your contact attempts, you may still have a
chance to purchase the property at public auction, which occurs if the
owner doesn't sell or pay off the amount owed during the pre-foreclosure
period. You could also call the trustee periodically to check if an auction
has been scheduled.
Negotiating a purchase agreement
Once you have made contact with the owner, you should meet with them
for further discussion about the property. As part of this meeting, or a later
one, you should arrange to walk through the property to make sure it
meets your criteria as a buyer.
Because owners in foreclosure may not have the money to make repairs
to their property, you might be willing to buy the property "as is." But you
still want to keep a tab of estimated repair costs and subtract them from
your purchase offer. Your willingness to put some "sweat equity" in the
property after you purchase it will increase the chances of realizing a
good bargain.
If you and the owner both agree to proceed, you need to negotiate the
terms of a purchase. These negotiations will involve you, the owner and
the foreclosing lender. A real estate agent can be a valuable resource
during the negotiating process.
If the loan in default is assumable, you may be able to pay off the amount
in default and take over payments under the current terms of that loan. If
not, you will need to pay off the full amount owed on the loan. If the
property has other liens placed on it, you'll need to make sure those are
cleared out as part of the purchase agreement. If the owner has equity in
the property above and beyond the liens, then you can offer to split the
equity with them, allowing them to walk away with cash and you to
acquire a property below market value.
Owners might be more willing to work with you if you are flexible to help
them out in creative ways that address their situation. You could offer to
let them stay in the house for a certain amount of time (possibly paying
rent) until they find a new place to stay. You could offer to pay their
housing costs for the first month or more after they leave the property. If
you're purchasing the property as an investment, you may let them stay
and pay rent until you decide to resell the house. There are myriad ways to
work out an agreement that benefits both parties. Remember, just selling
the property during pre-foreclosure allows owners to avoid a
foreclosure-marred credit history, making it easier for them to find a new
place to live.
While negotiating the purchase agreement with the owner, you should also
contact the foreclosing lender and any other lien holders. You want them
to know you plan to purchase the property and satisfy any liens against the
property. You also may be able to negotiate a lower payoff amount to
satisfy the debts owed. Since you're saving them the trouble of pursuing
and collecting the debt owed them, some foreclosing lenders and lien
holders will clear liens on a property for less than 100 percent of the
amount owed. This is another way to realize a bargain during
pre-foreclosure.
The goal for you as a buyer is to purchase a property at least 20 percent
below full market value, although better deals are often possible. When
determining the final purchase offer, you should also take into account the
rate of real estate appreciation in the area and the potential for increasing
the house's value by making repairs and improvements.
Closing the deal
Once you've arrived at an agreement with the owner in default, the
foreclosing lender and any other lien holders, you can put the agreement
in writing. If you're not familiar with how to draw up a purchase
agreement, you should have a local real estate agent or real estate
attorney help.
Any purchase agreement should make closing the deal contingent on a full
title search conducted by a title company or attorney. The purchase
agreement should also allow for a professional inspection of the property
before closing the deal.
An escrow company, who acts as a third party, can manage the transfer of
money and property ownership. Assuming that you have your financing
secured, this should be a fairly smooth process.
Buying at Auction
Finding and filing properties
Develop a system to keep track of properties that interest
you. A good tracking system is important since most
successful auction buyers pursue several properties
sometimes over a period of several months.
After you find a property online, it's a good idea to drive by
the property to get a better idea of the property's condition
and the type of neighborhood. For some buyers and
investors, driving by the property has also facilitated a
casual meeting with the owner (you may be able to still
work out a last-minute deal before the auction) or yielded a
wealth of unexpected information from a talkative neighbor.
Confirming the auction status, location and bidding
procedure
After a property is scheduled for auction, the owner has a
chance (typically less than a month) to stop the auction by
paying the amount owed to the foreclosing lender. It's also
not uncommon for auctions to be postponed without a new
date being published. Although cancellations and
postponements are announced at the time and location of
the originally scheduled auction, you can call the trustee to
find out beforehand.
Most auctions are at a public place in the same county
where the property is located. In many states, all the
auctions in each county are at the same location. The
auction location is usually listed online (e.g. RealtyTrac) or
you can typically get the location from the trustee or the
county clerk. If you call the county clerk, make sure you
clarify that you are looking for the location of mortgage
foreclosure auctions, not tax foreclosure auctions.
The bidding procedure varies from state to state, so you
should become familiar with the procedure in your area
before bidding at an auction. In some states, bidders are
required to bring the full amount they want to bid in the
form of cash or cashier's check to the auction. In other
states, bidders are required to bring a certain percentage
(10 percent is common) of the bid amount to the auction
and pay the remainder of the amount within a certain
timeframe. If you get a friendly representative when you
call the trustee, you might be able to get information about
how the bidding works in your area, but in most cases you'll
need to educate yourself. You could also contact a local
real estate agent or attorney in your area. Of course, the
best education will come from simply observing a local
auction.
Researching the potential bargain
You need to find out as much as you can about the
estimated market value of the property, how much is owed
on the property and if the owner has any other liens against
the property. If there are outstanding liens on the property,
the winning bidder at the auction may be responsible to
satisfy these liens in some cases, so it's important to check
for any liens and the priority of the liens before you bid at
the auction. A real estate attorney or title company can
check for liens, or you can check directly with county
records.
The priority of a lien is usually determined by the date it
was placed on the property. So a first mortgage will usually
have the first priority, and all other liens will be considered
junior liens. In most states, the public auction clears out
any junior liens, but there are exceptions such as tax liens,
which typically will continue to be in effect after the
auction.
The opening bid at the auction is based on the total
amount owed to the foreclosing lender and may include
fees incurred because of the foreclosure proceedings. If no
one bids above that amount, the foreclosing lender will take
possession of the property. It's important to know this amount
so you can determine if the auction represents a potential
bargain purchase when the opening bid is compared to the
property's market value.
Determining your bid
Based on all the factors used to determine the potential
bargain - and your financial capability - you'll need to
determine how much you can and should bid at the
auction.
Determining your bid amount is more important in states
where bidders are required to bring the full amount in cash
or cashier's check to the auction. You won't even be
qualified to bid if you don't meet that requirement. If you
don't have that type of cash lying around, you have a
couple options. If you own a home, you might be able to
take out a home equity line of credit, which is a cash loan.
If you can't secure a cash loan, you may consider buying a
pre-foreclosure or bank-owned property, which usually
require only a regular mortgage loan secured by the
property being purchased.
It's also important to determine the bid amount even in
states where you don't need to bring the full amount to the
auction. By setting a firm ceiling for your bid, you'll avoid
getting caught up in the heady auction atmosphere and
overbidding, which can result in little or no bargain for you.
Also, if you're not able to pay the remainder of the bid
within the time frame stipulated by state law, the deposit
you paid at the auction is often nonrefundable.
A reasonable purchase amount at auction is at least 20
percent below full market value, and much better deals are
often possible. Other factors to consider are the rate of real
estate appreciation in the area and the potential for
increasing the property's value by making repairs and
improvements.
Bidding at the auction
Call the trustee the day before or the day of the auction to
check one last time if the auction has been canceled or
postponed. If an auction is postponed, the trustee should
provide the new auction date.
Arrive at the auction location early and locate the
auctioneer as quickly as possible. Bidding at an auction
can be intimidating, especially if you've never done it
before. Take as many cues from the other participants as
you can, but don't let them dictate how much you bid. You
may encounter investors who attend many auctions every
month and who don't necessarily appreciate new
competition.
Taking ownership
If you are the winning bidder, make sure you get the
necessary documents from the auctioneer to verify that you
are the winning bidder. Clarify with the auctioneer and a
real estate attorney what further steps need to be made
before you take ownership and possession of the property. In
some states, ownership can be transferred immediately or
within a few days. In other states, you may need to wait a
month or more for the sale to be confirmed by a court.
Some states have redemption periods for the owner, in
which case the owner can buy the property back from you if
they pay the full amount paid at the auction, plus
applicable fees. You should avoid spending money on
repairs or improvements during the redemption period.
If the trustee does not evict the current owners, you may be
responsible to do this. If eviction is necessary, you can
contact a local real estate attorney or the county sheriff for
the proper procedure.
Finding and filing properties
Develop a system to keep track of properties that interest
you. A good tracking system is important since most
successful auction buyers pursue several properties
sometimes over a period of several months.
After you find a property online, it's a good idea to drive by
the property to get a better idea of the property's condition
and the type of neighborhood. For some buyers and
investors, driving by the property has also facilitated a
casual meeting with the owner (you may be able to still
work out a last-minute deal before the auction) or yielded a
wealth of unexpected information from a talkative neighbor.
Confirming the auction status, location and bidding
procedure
After a property is scheduled for auction, the owner has a
chance (typically less than a month) to stop the auction by
paying the amount owed to the foreclosing lender. It's also
not uncommon for auctions to be postponed without a new
date being published. Although cancellations and
postponements are announced at the time and location of
the originally scheduled auction, you can call the trustee to
find out beforehand.
Most auctions are at a public place in the same county
where the property is located. In many states, all the
auctions in each county are at the same location. The
auction location is usually listed online (e.g. RealtyTrac) or
you can typically get the location from the trustee or the
county clerk. If you call the county clerk, make sure you
clarify that you are looking for the location of mortgage
foreclosure auctions, not tax foreclosure auctions.
The bidding procedure varies from state to state, so you
should become familiar with the procedure in your area
before bidding at an auction. In some states, bidders are
required to bring the full amount they want to bid in the
form of cash or cashier's check to the auction. In other
states, bidders are required to bring a certain percentage
(10 percent is common) of the bid amount to the auction
and pay the remainder of the amount within a certain
timeframe. If you get a friendly representative when you
call the trustee, you might be able to get information about
how the bidding works in your area, but in most cases you'll
need to educate yourself. You could also contact a local
real estate agent or attorney in your area. Of course, the
best education will come from simply observing a local
auction.
Researching the potential bargain
You need to find out as much as you can about the
estimated market value of the property, how much is owed
on the property and if the owner has any other liens against
the property. If there are outstanding liens on the property,
the winning bidder at the auction may be responsible to
satisfy these liens in some cases, so it's important to check
for any liens and the priority of the liens before you bid at
the auction. A real estate attorney or title company can
check for liens, or you can check directly with county
records.
The priority of a lien is usually determined by the date it
was placed on the property. So a first mortgage will usually
have the first priority, and all other liens will be considered
junior liens. In most states, the public auction clears out
any junior liens, but there are exceptions such as tax liens,
which typically will continue to be in effect after the
auction.
The opening bid at the auction is based on the total
amount owed to the foreclosing lender and may include
fees incurred because of the foreclosure proceedings. If no
one bids above that amount, the foreclosing lender will take
possession of the property. It's important to know this amount
so you can determine if the auction represents a potential
bargain purchase when the opening bid is compared to the
property's market value.
Determining your bid
Based on all the factors used to determine the potential
bargain - and your financial capability - you'll need to
determine how much you can and should bid at the
auction.
Determining your bid amount is more important in states
where bidders are required to bring the full amount in cash
or cashier's check to the auction. You won't even be
qualified to bid if you don't meet that requirement. If you
don't have that type of cash lying around, you have a
couple options. If you own a home, you might be able to
take out a home equity line of credit, which is a cash loan.
If you can't secure a cash loan, you may consider buying a
pre-foreclosure or bank-owned property, which usually
require only a regular mortgage loan secured by the
property being purchased.
It's also important to determine the bid amount even in
states where you don't need to bring the full amount to the
auction. By setting a firm ceiling for your bid, you'll avoid
getting caught up in the heady auction atmosphere and
overbidding, which can result in little or no bargain for you.
Also, if you're not able to pay the remainder of the bid
within the time frame stipulated by state law, the deposit
you paid at the auction is often nonrefundable.
A reasonable purchase amount at auction is at least 20
percent below full market value, and much better deals are
often possible. Other factors to consider are the rate of real
estate appreciation in the area and the potential for
increasing the property's value by making repairs and
improvements.
Bidding at the auction
Call the trustee the day before or the day of the auction to
check one last time if the auction has been canceled or
postponed. If an auction is postponed, the trustee should
provide the new auction date.
Arrive at the auction location early and locate the
auctioneer as quickly as possible. Bidding at an auction
can be intimidating, especially if you've never done it
before. Take as many cues from the other participants as
you can, but don't let them dictate how much you bid. You
may encounter investors who attend many auctions every
month and who don't necessarily appreciate new
competition.
Taking ownership
If you are the winning bidder, make sure you get the
necessary documents from the auctioneer to verify that you
are the winning bidder. Clarify with the auctioneer and a
real estate attorney what further steps need to be made
before you take ownership and possession of the property. In
some states, ownership can be transferred immediately or
within a few days. In other states, you may need to wait a
month or more for the sale to be confirmed by a court.
Some states have redemption periods for the owner, in
which case the owner can buy the property back from you if
they pay the full amount paid at the auction, plus
applicable fees. You should avoid spending money on
repairs or improvements during the redemption period.
If the trustee does not evict the current owners, you may be
responsible to do this. If eviction is necessary, you can
contact a local real estate attorney or the county sheriff for
the proper procedure.
How to Buy Real Estate Bank Owned??
Finding and filing properties
Develop a system to keep track of properties that interest you. A good tracking system is important as
most foreclosure buyers pursue many properties, sometimes over a period of several months.
After you find a property online, it's a good idea to drive by the property to get a better idea of the
property's condition and the type of neighborhood. Some buyers and investors who have driven by the
property have found notices posted there that provide more information about the bank who now owns
the property. You'll also see if the property is listed with a real estate agent.
Researching the potential bargain
When you find a property that interests you, perform some preliminary research to make sure the
property represents a good bargain opportunity. Your research should not take more than one or two
days because you do not want to delay too long before contacting the foreclosing bank. The key pieces
of information you need to gather are the estimated market value of the property and the bank's
break-even amount.
The bank's break-even amount includes the unpaid balance of the loan, any fees and costs incurred
during the foreclosure process and any other liens the bank had to pay off to take ownership of the
property. The unpaid loan balance plus any foreclosure fees and costs are included in the opening bid.
Contacting the bank
You or your real estate agent should initiate contact with the bank to express your interest in the
property. Before you expend the time and effort to contact the bank, make sure you're fully prepared to
buy.
At this stage of foreclosure it's more likely the property will be listed for sale on the Multiple Listing
Service (MLS), so make sure you or your agent checks the MLS. If the property is listed for sale, you can
contact the listing agent directly. Keep in mind that the potential bargain often diminishes if a listing
agent is involved.
If the property is not listed with a real estate agent, you'll need to take some pro-active steps to contact
the foreclosing bank directly. The bank's main focus is not selling property, which means you may need
to do some digging to find the department or person at the bank who manages repossessed property.
When you call the foreclosing bank, you should ask for the REO (Real Estate Owned) department,
bank-owned homes department or asset management department. Be patient and persistent at this point
because it may take some time to get through to this department.
If you have trouble contacting the bank by phone, another option is to overnight or fax a letter to the bank
stating your interest in the property. Some buyers and investors include a check made out to a local
escrow company to get the bank's attention. This check is usually a small percentage of the total
purchase price and should be refunded if no transaction takes place, but it shows you're a serious buyer.
Negotiating a purchase agreement
Once you make contact with the bank's asset manager or REO officer, you should arrange to walk
through the property (with your agent if applicable) to make sure it fits your criteria as a buyer. If both you
and the bank agree to proceed, you should start negotiating the terms of the purchase agreement. A real
estate agent can be a valuable resource during the negotiating process.
If state law allows a redemption period for the owner after the bank takes ownership of the property, you
may have to wait until the end of the redemption period - several weeks or several months, depending
on the state. During the redemption period the owner can regain ownership of the property by paying the
total amount owed to the bank plus any applicable foreclosure expenses.
The bank's primary goal is to at least break even on all the costs that it has sunk into the property. That
includes the unpaid balance of the loan, the expenses associated with the foreclosure proceedings,
other liens and repairs to the property. Your goal as a buyer is to purchase the property below market
value, minus any estimated repair costs. This is often possible if you contact the bank quickly and are a
prepared buyer ready to make a purchase.
In the recent real estate market, buying directly from the bank has not been as profitable as buying
during pre-foreclosure or at the public auction. That's not to say there aren't good deals available. And
many buyers and investors prefer to buy directly from the bank because it's typically a more predictable
process than buying during pre-foreclosure or at a public auction.
You'll probably get a better bargain if you're willing to buy the property "as is," meaning you're willing to
buy the property in need of repairs disclosed by the seller. Of course you'll still want to figure estimated
repair costs into your final purchase offer.
Banks may be more willing to sell at a below-market price if they have a glut of foreclosures, which are
non-performing assets from their perspective. If you're an investor or buyer looking for more properties
to purchase, you should let the asset manager or REO officer know to contact you in the future if the
bank needs to quickly unload foreclosure properties.
Closing the deal
Once you've arrived at an agreement with the foreclosing bank, you can put the agreement in writing.
You should have a local real estate agent or real estate attorney help if you're not familiar with how to
draw up a purchase agreement.
Any purchase agreement should make closing of the deal contingent on a full title search conducted by a
title company or attorney. The purchase agreement should also allow for a professional inspection of the
property before closing the deal.
An escrow company, who acts as a third party, can manage the transfer of money and property
ownership. Assuming that you have your financing secured, this should be a fairly smooth process.
Finding and filing properties
Develop a system to keep track of properties that interest you. A good tracking system is important as
most foreclosure buyers pursue many properties, sometimes over a period of several months.
After you find a property online, it's a good idea to drive by the property to get a better idea of the
property's condition and the type of neighborhood. Some buyers and investors who have driven by the
property have found notices posted there that provide more information about the bank who now owns
the property. You'll also see if the property is listed with a real estate agent.
Researching the potential bargain
When you find a property that interests you, perform some preliminary research to make sure the
property represents a good bargain opportunity. Your research should not take more than one or two
days because you do not want to delay too long before contacting the foreclosing bank. The key pieces
of information you need to gather are the estimated market value of the property and the bank's
break-even amount.
The bank's break-even amount includes the unpaid balance of the loan, any fees and costs incurred
during the foreclosure process and any other liens the bank had to pay off to take ownership of the
property. The unpaid loan balance plus any foreclosure fees and costs are included in the opening bid.
Contacting the bank
You or your real estate agent should initiate contact with the bank to express your interest in the
property. Before you expend the time and effort to contact the bank, make sure you're fully prepared to
buy.
At this stage of foreclosure it's more likely the property will be listed for sale on the Multiple Listing
Service (MLS), so make sure you or your agent checks the MLS. If the property is listed for sale, you can
contact the listing agent directly. Keep in mind that the potential bargain often diminishes if a listing
agent is involved.
If the property is not listed with a real estate agent, you'll need to take some pro-active steps to contact
the foreclosing bank directly. The bank's main focus is not selling property, which means you may need
to do some digging to find the department or person at the bank who manages repossessed property.
When you call the foreclosing bank, you should ask for the REO (Real Estate Owned) department,
bank-owned homes department or asset management department. Be patient and persistent at this point
because it may take some time to get through to this department.
If you have trouble contacting the bank by phone, another option is to overnight or fax a letter to the bank
stating your interest in the property. Some buyers and investors include a check made out to a local
escrow company to get the bank's attention. This check is usually a small percentage of the total
purchase price and should be refunded if no transaction takes place, but it shows you're a serious buyer.
Negotiating a purchase agreement
Once you make contact with the bank's asset manager or REO officer, you should arrange to walk
through the property (with your agent if applicable) to make sure it fits your criteria as a buyer. If both you
and the bank agree to proceed, you should start negotiating the terms of the purchase agreement. A real
estate agent can be a valuable resource during the negotiating process.
If state law allows a redemption period for the owner after the bank takes ownership of the property, you
may have to wait until the end of the redemption period - several weeks or several months, depending
on the state. During the redemption period the owner can regain ownership of the property by paying the
total amount owed to the bank plus any applicable foreclosure expenses.
The bank's primary goal is to at least break even on all the costs that it has sunk into the property. That
includes the unpaid balance of the loan, the expenses associated with the foreclosure proceedings,
other liens and repairs to the property. Your goal as a buyer is to purchase the property below market
value, minus any estimated repair costs. This is often possible if you contact the bank quickly and are a
prepared buyer ready to make a purchase.
In the recent real estate market, buying directly from the bank has not been as profitable as buying
during pre-foreclosure or at the public auction. That's not to say there aren't good deals available. And
many buyers and investors prefer to buy directly from the bank because it's typically a more predictable
process than buying during pre-foreclosure or at a public auction.
You'll probably get a better bargain if you're willing to buy the property "as is," meaning you're willing to
buy the property in need of repairs disclosed by the seller. Of course you'll still want to figure estimated
repair costs into your final purchase offer.
Banks may be more willing to sell at a below-market price if they have a glut of foreclosures, which are
non-performing assets from their perspective. If you're an investor or buyer looking for more properties
to purchase, you should let the asset manager or REO officer know to contact you in the future if the
bank needs to quickly unload foreclosure properties.
Closing the deal
Once you've arrived at an agreement with the foreclosing bank, you can put the agreement in writing.
You should have a local real estate agent or real estate attorney help if you're not familiar with how to
draw up a purchase agreement.
Any purchase agreement should make closing of the deal contingent on a full title search conducted by a
title company or attorney. The purchase agreement should also allow for a professional inspection of the
property before closing the deal.
An escrow company, who acts as a third party, can manage the transfer of money and property
ownership. Assuming that you have your financing secured, this should be a fairly smooth process.
The 7 New Rules of Financial Security
In a world turned upside down, you must re-examine some basic assumptions. A good place to
start: understanding the true nature of risk.
Rule No. 1: Risk
Old thinking: If you can stomach the ups and downs that come with risk, you'll be rewarded.
New rule: Risk isn't about your stomach. It's about making or missing an important goal.
You know you have to consider risk. But what is risk? Many of us have learned to think of risk as
synonymous with volatility. For years, what came down reliably bounced back even higher.
You could easily conclude that risk tolerance was just a matter of taste. As long as you had the
fortitude to see the occasional loss on your 401(k) statement and not panic, you would capture
superior returns over time.
What to do: You shouldn't run from risky investments just because they lost money - that train
has left the station. But the old buy-on-the-dips advice isn't quite right either. This bear market's
lesson is that how much risk you can take is a matter of how much you can lose and still meet
your basic goals. That may mean scaling back on stocks, even if you miss some of the next
market rebound.
Rule No. 2: Cash
Old thinking: Keep enough money in ultrasafe accounts to cover life's emergencies, but no
more.
New rule: Relying more on cash can rescue you in an "asset emergency."
For most of your career you'll want to set aside about six months' worth of living expenses in the
bank. That money covers the mortgage and puts food on the table should you lose your job.
The fact that you'll earn only about 2% is beside the point. You can't take the risk.
The simultaneous crash in stocks and houses has taught us that we need to redefine
"emergency."Rande Spiegelman, vice president of financial planning for the Schwab Center
for Financial Research, recommends looking at the next one to three years and adding up any
big-ticket stuff you see coming: tuition, a wedding, a down payment on a house. Once you
have your total, aim to hold that much in a cash account or a low-risk investment such as a
high-quality short-term bond fund.
What to do: It's not easy to build cash savings and a retirement fund at the same time. If you
have to make choices, build up that emergency fund first because you can't expect to lean on
your home equity or stocks if you lose your job. And see if you have some flexibility on the
big-ticket obligations. Maybe you plan for a state school rather than a private college, or
downsize the wedding. If all your assets are in a 401(k), move some of that balance to low-risk
investment options as you build your cash funds. That will preserve more to tap via a 401(k)
loan in a pinch. Not a terrific option, but it can beat the alternatives.
In the years just before and after retirement, cash becomes even more important. You don't
want to sell stocks during a bear market to buy groceries. Aim for two to four years' worth of
living expenses in low-risk assets as you near retirement.
Rule No. 3: Human Capital
Old thinking: The longer your time horizon, the more stocks you should own.
New rule: Time isn't everything. You must also consider your earnings potential.
It's one of the basic rules of thumb: The more years you have to recoup losses, the more
aggressive you can be. Unfortunately, the math isn't so clear-cut.
Here's a better way to think about how aggressive your portfolio should be: Imagine that it
includes not only stocks and bonds but also your human capital, meaning your ability to earn
income by working. The safer it is, the more chances you can afford to take with your other
assets - that is, your portfolio.
This doesn't mean that time no longer matters. As you age, the value of your human capital
declines, and you'll need to secure more of your savings. So the conventional advice to hold a
lot in stocks when you are young and gradually trim back can still make sense.
But not for everyone. The nature of your career may make your human capital more bond-like
or more stock-like, says finance professor Moshe Milevsky of York University in Toronto. Tenured
professors like Milevsky have human capital that resembles a triple-A-rated bond, especially
when they have a solid pension plan. Those lucky souls can dive aggressively into stocks and
even stay there as they approach retirement, he says. The human capital of a
commission-based mortgage broker, on the other hand, is pretty clearly a stock - and it's not a
blue chip. That person should own a fair amount of bonds, even when young.
What to do: Assess your human capital. A typical worker's income is about 70% like a bond and
30% like a stock, says Thomas Idzorek, chief investment officer for Ibbotson Associates. Use
that as your baseline and then think about how long you'll be working, the stability of your
current job, and your ability to change careers if you have to. You've probably realized in the
past few months that your human capital is not as secure as you once thought. If you've been
an aggressive investor, that alone may be a reason to shift more of your assets to safer ground.
Rule No. 4: Borrowing
Old thinking: Borrowing sensibly is a good way to build wealth.
New rule: Borrow cautiously. You have to worry about the other guy's debt too.
The quarter-century leading up to 2007 wasn't simply a golden age for stocks. It was also a bull
market for leverage. (That's Wall Streetspeak for debt.) Since 1982, mortgage rates have fallen
from 16% to below 6%. The levy on college loans dropped to around 3%. Americans
responded to easy credit in a predictable way. The personal savings rate fell from over 12% to
zilch, and household debt payments as a percentage of disposable income rose by a third as
families "put it on the card" and paid for lavish kitchen upgrades with home-equity loans.
Looking back, America's borrowing binge was nuts. Families were leaning on housing wealth,
and that wealth was shaky.
The obvious moral here is to be conservative. There are always good reasons to borrow, even
today. You need a mortgage to buy a house, and a college education provides enough of a
lifetime payoff to justify a loan. But you ought to stretch less.
There's a subtler lesson too. David Ellison, president of the FBR Funds, says that you have more
exposure to leverage than you think, especially now that everyone is trying to unload debt.
Perhaps your employer borrowed a lot over the past decade and now needs to conserve cash,
so it's laying off staff. Suddenly that HELOC you could easily handle on your salary doesn't look
like such a super idea. You can't lean on your investments for help, because many of the
companies you owned used leverage to pump up profits, and now they can't borrow, so their
earnings and stock prices are falling. And it's harder to shore up your own balance sheet by
selling your house when banks are reining in lending and potential buyers are scared to borrow
for an asset that may decline further.
What to do: Be conservative about debt? Make that very conservative. Especially when your
neighbors aren't. Get a mortgage you can afford for the life of the loan, and put at least 20%
down.
Rule No. 5: Housing
Old thinking: You can expect your house to appreciate handsomely over the long run.
New rule: Your home won't make you rich. But it is an important savings tool.
If you live on one of the coasts, you probably guessed sometime around 2005 that home prices
couldn't keep rising the way they were. But the severity of the crash was still a shock: You heard
a lot about how the market would have to "cool off" or "get back to normal" - the implication
being that slow but steady appreciation was the future.
But the long-run data always told a different story. Yale University economist Robert Shiller
looked closely in 2005 at the history of home prices since 1890, using a database he
constructed. What he found was surprising. Except for two spectacular booms - the first after
World War II and the second starting in 1998 - real estate appreciation has been unimpressive
after figuring in inflation. As Shiller wrote in "Irrational Exuberance," technology has allowed
builders to nail up more houses faster, ensuring that supply never gets too far behind demand
(and often gets ahead of it).
Even when prices are rising, gains on real estate aren't as dazzling as they look, once you
account for expenses. Maintenance costs typically run at about 1% of a home's value
annually, in addition to insurance and taxes. If you remodel, the most you can expect to
recoup is about 80%. You have to pay steep fees when you buy (up to 3% in closing costs) and
sell (up to 6% for realtor fees).
What to do: This doesn't mean you have to rent, just that you should have modest expectations
for your house as a wealth builder. There are still financial pluses. First, owning a house gives
you a hedge against rising values in your own community so that you don't risk being priced
out as rents go up. (Ask a New Yorker about that.) Second, a traditional 30-year mortgage acts
as what economists call a "commitment device," or a tool that forces you to save. Instead of
writing a check to a landlord, you gradually pay off principal. At the end, you own a house.
Aside from your 401(k), no other asset enforces such discipline.
Rule No. 6: Diversification
Old thinking: A diversified portfolio lowers your risk.
New rule: Diversification won't always save you - and you need more of it than you think.
Diversification hasn't stopped you from getting hurt in this downturn. Both U.S. and foreign
stocks are deep in the red. Holding bonds did cushion your losses, but most kinds of bonds still
declined. What happened?
Jeremy Grantham, chief investment strategist at GMO, observed back in 2007 that we had a
bubble not just in one or two kinds of assets, but in risk. Investors around the world were so
confident, and so hungry for even a little extra return, that they were throwing money at
anything that might deliver. Now that the risk bubble has burst, all those investors want now is
the safety of U.S. Treasuries. So everything has moved roughly in sync, both up and down, for
a few years.
Bear in mind, though, that these times are, to say the least, unusual. Over a longer period - as
little as a decade - diversification still looks effective. While large U.S. stocks are down the past
10 years, U.S. corporate bonds earned 4.6% a year for the same period.
But in a global economy where money moves quickly, you have to work harder at
diversification than before.
What to do: To ensure you are diversified, you don't have to go out and buy 16 new mutual
funds. First, look under the hood of the funds you have to see if you already own some of those
assets. An easy way to do so is to plug your holdings into Morningstar.com's Instant X-Ray tool.
And buy funds that kill two birds with one stone. The T. Rowe Price International Bond fund, for
example, invests up to 20% of its assets in emerging markets and the rest in developed
countries. Put that together with a high-yield fund and a broad U.S. bond fund, and you'll own
most of the bond universe.
Rule No. 7: Retirement
Old thinking: Retiring early is a prize.
New rule: Retiring early is a problem.
Ever since Uncle Sam set 65 as the age you could retire and collect full Social Security
benefits (it's 66 or 67 for boomers today), workers have been trying to beat that bogey by
quitting early. And that seemed well within reach earlier in this decade after a bull market that
gave workers confidence that their money could work for them rather than the other way around.
But the reality of early retirement, even before the stock market's sickening plunge, was never
quite that rosy. More than half of early retirees leave work before they intended, and of those,
nine in 10 depart because they get sick or are downsized.
And now the financial prospects for those who had a shot at a secure early retirement have
dimmed: Long-tenured workers nearing retirement have seen their 401(k) accounts shrink an
average of 30% over the past 14 months, according to EBRI. There's no way around it: The
numbers require you to rethink your plans.
What to do: "By delaying retirement just one year you could increase your annual retirement
income by 9%," says Richard Johnson, senior fellow at the Urban Institute. If you can hang on
to your current high-paying post, great. The reality, of course, is that in an era of harsh cost
cutting, well-paid older workers are more vulnerable. And you might not want to stick it out any
longer anyway if the severance is decent. But there's much to be gained from finding another
job, even if it's a lower-paid or part-time position. If you can earn enough to avoid collecting
Social Security benefits early or dipping into your retirement accounts, research by T. Rowe
Price shows, you'll barely feel a hit to your income when you do retire. If your new job comes
with health benefits, so much the better. The average health-care tab for an early retiree
before he is eligible for Medicare runs to $8,500 a year, says an AARP study.
Despite all those benefits, if you are still many years away from the retire-or-work decision, you
should think of working longer as Plan B. As we noted, you won't have complete control over
your ability to work - your health or the job market could make it difficult. That means you can't
afford to assume that you'll just work a few more years if things go wrong. You will still have to
stick to rules 1 through 6.
In a world turned upside down, you must re-examine some basic assumptions. A good place to
start: understanding the true nature of risk.
Rule No. 1: Risk
Old thinking: If you can stomach the ups and downs that come with risk, you'll be rewarded.
New rule: Risk isn't about your stomach. It's about making or missing an important goal.
You know you have to consider risk. But what is risk? Many of us have learned to think of risk as
synonymous with volatility. For years, what came down reliably bounced back even higher.
You could easily conclude that risk tolerance was just a matter of taste. As long as you had the
fortitude to see the occasional loss on your 401(k) statement and not panic, you would capture
superior returns over time.
What to do: You shouldn't run from risky investments just because they lost money - that train
has left the station. But the old buy-on-the-dips advice isn't quite right either. This bear market's
lesson is that how much risk you can take is a matter of how much you can lose and still meet
your basic goals. That may mean scaling back on stocks, even if you miss some of the next
market rebound.
Rule No. 2: Cash
Old thinking: Keep enough money in ultrasafe accounts to cover life's emergencies, but no
more.
New rule: Relying more on cash can rescue you in an "asset emergency."
For most of your career you'll want to set aside about six months' worth of living expenses in the
bank. That money covers the mortgage and puts food on the table should you lose your job.
The fact that you'll earn only about 2% is beside the point. You can't take the risk.
The simultaneous crash in stocks and houses has taught us that we need to redefine
"emergency."Rande Spiegelman, vice president of financial planning for the Schwab Center
for Financial Research, recommends looking at the next one to three years and adding up any
big-ticket stuff you see coming: tuition, a wedding, a down payment on a house. Once you
have your total, aim to hold that much in a cash account or a low-risk investment such as a
high-quality short-term bond fund.
What to do: It's not easy to build cash savings and a retirement fund at the same time. If you
have to make choices, build up that emergency fund first because you can't expect to lean on
your home equity or stocks if you lose your job. And see if you have some flexibility on the
big-ticket obligations. Maybe you plan for a state school rather than a private college, or
downsize the wedding. If all your assets are in a 401(k), move some of that balance to low-risk
investment options as you build your cash funds. That will preserve more to tap via a 401(k)
loan in a pinch. Not a terrific option, but it can beat the alternatives.
In the years just before and after retirement, cash becomes even more important. You don't
want to sell stocks during a bear market to buy groceries. Aim for two to four years' worth of
living expenses in low-risk assets as you near retirement.
Rule No. 3: Human Capital
Old thinking: The longer your time horizon, the more stocks you should own.
New rule: Time isn't everything. You must also consider your earnings potential.
It's one of the basic rules of thumb: The more years you have to recoup losses, the more
aggressive you can be. Unfortunately, the math isn't so clear-cut.
Here's a better way to think about how aggressive your portfolio should be: Imagine that it
includes not only stocks and bonds but also your human capital, meaning your ability to earn
income by working. The safer it is, the more chances you can afford to take with your other
assets - that is, your portfolio.
This doesn't mean that time no longer matters. As you age, the value of your human capital
declines, and you'll need to secure more of your savings. So the conventional advice to hold a
lot in stocks when you are young and gradually trim back can still make sense.
But not for everyone. The nature of your career may make your human capital more bond-like
or more stock-like, says finance professor Moshe Milevsky of York University in Toronto. Tenured
professors like Milevsky have human capital that resembles a triple-A-rated bond, especially
when they have a solid pension plan. Those lucky souls can dive aggressively into stocks and
even stay there as they approach retirement, he says. The human capital of a
commission-based mortgage broker, on the other hand, is pretty clearly a stock - and it's not a
blue chip. That person should own a fair amount of bonds, even when young.
What to do: Assess your human capital. A typical worker's income is about 70% like a bond and
30% like a stock, says Thomas Idzorek, chief investment officer for Ibbotson Associates. Use
that as your baseline and then think about how long you'll be working, the stability of your
current job, and your ability to change careers if you have to. You've probably realized in the
past few months that your human capital is not as secure as you once thought. If you've been
an aggressive investor, that alone may be a reason to shift more of your assets to safer ground.
Rule No. 4: Borrowing
Old thinking: Borrowing sensibly is a good way to build wealth.
New rule: Borrow cautiously. You have to worry about the other guy's debt too.
The quarter-century leading up to 2007 wasn't simply a golden age for stocks. It was also a bull
market for leverage. (That's Wall Streetspeak for debt.) Since 1982, mortgage rates have fallen
from 16% to below 6%. The levy on college loans dropped to around 3%. Americans
responded to easy credit in a predictable way. The personal savings rate fell from over 12% to
zilch, and household debt payments as a percentage of disposable income rose by a third as
families "put it on the card" and paid for lavish kitchen upgrades with home-equity loans.
Looking back, America's borrowing binge was nuts. Families were leaning on housing wealth,
and that wealth was shaky.
The obvious moral here is to be conservative. There are always good reasons to borrow, even
today. You need a mortgage to buy a house, and a college education provides enough of a
lifetime payoff to justify a loan. But you ought to stretch less.
There's a subtler lesson too. David Ellison, president of the FBR Funds, says that you have more
exposure to leverage than you think, especially now that everyone is trying to unload debt.
Perhaps your employer borrowed a lot over the past decade and now needs to conserve cash,
so it's laying off staff. Suddenly that HELOC you could easily handle on your salary doesn't look
like such a super idea. You can't lean on your investments for help, because many of the
companies you owned used leverage to pump up profits, and now they can't borrow, so their
earnings and stock prices are falling. And it's harder to shore up your own balance sheet by
selling your house when banks are reining in lending and potential buyers are scared to borrow
for an asset that may decline further.
What to do: Be conservative about debt? Make that very conservative. Especially when your
neighbors aren't. Get a mortgage you can afford for the life of the loan, and put at least 20%
down.
Rule No. 5: Housing
Old thinking: You can expect your house to appreciate handsomely over the long run.
New rule: Your home won't make you rich. But it is an important savings tool.
If you live on one of the coasts, you probably guessed sometime around 2005 that home prices
couldn't keep rising the way they were. But the severity of the crash was still a shock: You heard
a lot about how the market would have to "cool off" or "get back to normal" - the implication
being that slow but steady appreciation was the future.
But the long-run data always told a different story. Yale University economist Robert Shiller
looked closely in 2005 at the history of home prices since 1890, using a database he
constructed. What he found was surprising. Except for two spectacular booms - the first after
World War II and the second starting in 1998 - real estate appreciation has been unimpressive
after figuring in inflation. As Shiller wrote in "Irrational Exuberance," technology has allowed
builders to nail up more houses faster, ensuring that supply never gets too far behind demand
(and often gets ahead of it).
Even when prices are rising, gains on real estate aren't as dazzling as they look, once you
account for expenses. Maintenance costs typically run at about 1% of a home's value
annually, in addition to insurance and taxes. If you remodel, the most you can expect to
recoup is about 80%. You have to pay steep fees when you buy (up to 3% in closing costs) and
sell (up to 6% for realtor fees).
What to do: This doesn't mean you have to rent, just that you should have modest expectations
for your house as a wealth builder. There are still financial pluses. First, owning a house gives
you a hedge against rising values in your own community so that you don't risk being priced
out as rents go up. (Ask a New Yorker about that.) Second, a traditional 30-year mortgage acts
as what economists call a "commitment device," or a tool that forces you to save. Instead of
writing a check to a landlord, you gradually pay off principal. At the end, you own a house.
Aside from your 401(k), no other asset enforces such discipline.
Rule No. 6: Diversification
Old thinking: A diversified portfolio lowers your risk.
New rule: Diversification won't always save you - and you need more of it than you think.
Diversification hasn't stopped you from getting hurt in this downturn. Both U.S. and foreign
stocks are deep in the red. Holding bonds did cushion your losses, but most kinds of bonds still
declined. What happened?
Jeremy Grantham, chief investment strategist at GMO, observed back in 2007 that we had a
bubble not just in one or two kinds of assets, but in risk. Investors around the world were so
confident, and so hungry for even a little extra return, that they were throwing money at
anything that might deliver. Now that the risk bubble has burst, all those investors want now is
the safety of U.S. Treasuries. So everything has moved roughly in sync, both up and down, for
a few years.
Bear in mind, though, that these times are, to say the least, unusual. Over a longer period - as
little as a decade - diversification still looks effective. While large U.S. stocks are down the past
10 years, U.S. corporate bonds earned 4.6% a year for the same period.
But in a global economy where money moves quickly, you have to work harder at
diversification than before.
What to do: To ensure you are diversified, you don't have to go out and buy 16 new mutual
funds. First, look under the hood of the funds you have to see if you already own some of those
assets. An easy way to do so is to plug your holdings into Morningstar.com's Instant X-Ray tool.
And buy funds that kill two birds with one stone. The T. Rowe Price International Bond fund, for
example, invests up to 20% of its assets in emerging markets and the rest in developed
countries. Put that together with a high-yield fund and a broad U.S. bond fund, and you'll own
most of the bond universe.
Rule No. 7: Retirement
Old thinking: Retiring early is a prize.
New rule: Retiring early is a problem.
Ever since Uncle Sam set 65 as the age you could retire and collect full Social Security
benefits (it's 66 or 67 for boomers today), workers have been trying to beat that bogey by
quitting early. And that seemed well within reach earlier in this decade after a bull market that
gave workers confidence that their money could work for them rather than the other way around.
But the reality of early retirement, even before the stock market's sickening plunge, was never
quite that rosy. More than half of early retirees leave work before they intended, and of those,
nine in 10 depart because they get sick or are downsized.
And now the financial prospects for those who had a shot at a secure early retirement have
dimmed: Long-tenured workers nearing retirement have seen their 401(k) accounts shrink an
average of 30% over the past 14 months, according to EBRI. There's no way around it: The
numbers require you to rethink your plans.
What to do: "By delaying retirement just one year you could increase your annual retirement
income by 9%," says Richard Johnson, senior fellow at the Urban Institute. If you can hang on
to your current high-paying post, great. The reality, of course, is that in an era of harsh cost
cutting, well-paid older workers are more vulnerable. And you might not want to stick it out any
longer anyway if the severance is decent. But there's much to be gained from finding another
job, even if it's a lower-paid or part-time position. If you can earn enough to avoid collecting
Social Security benefits early or dipping into your retirement accounts, research by T. Rowe
Price shows, you'll barely feel a hit to your income when you do retire. If your new job comes
with health benefits, so much the better. The average health-care tab for an early retiree
before he is eligible for Medicare runs to $8,500 a year, says an AARP study.
Despite all those benefits, if you are still many years away from the retire-or-work decision, you
should think of working longer as Plan B. As we noted, you won't have complete control over
your ability to work - your health or the job market could make it difficult. That means you can't
afford to assume that you'll just work a few more years if things go wrong. You will still have to
stick to rules 1 through 6.
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Real Estate...
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What is the value of your home? Find-out Now.. IT'S
FREE.
HOME-BUYERS FREE SERVICE: Before you buy it, you
must know how much it worths. What's the exact or
approximate value of it? FIND-OUT NOW!..
HOME INSPECTION: How to use home inspection
reports report to negotiate sale price? How to Identify a
Qualified and Reliable Home Inspector? How to
Interpret Home Inspection Reports?
FREE HOME ADVERTISEMENT FOR {FSBO}: For Sale
By Owner; Let us put your property on the market For
Sale. IT'S FREE -- Your listing will be available to
thousands of buyers & investors...
REAL ESTATE WANTED: Private Investors Want
Commercial Properties. Will Look at all income
producing properties. CONTACT US...
map to riches, it’s one of the best way to build wealth.
Search For, & Buy Property in Any City; Anywhere. Click
Here...
FREE SERVICE: Real Estate Assistance Program For
Home-Buyers & sellers. FREE MONEY: EARN CASH
BACK UP TO $2,500.00. LEARN MORE HERE!...
REAL ESTATE GENERAL INFORMATION CENTER:
Money-Making Information You'll Need to Succeed in
Real Estate...
Mortgage Loans Learning Center: Everything About
Mortgage Home Loans. What You Need to Know Before
& After Taking a Mortgage Loan..
FREE Home Value Report, {CMA - Home Appraisal}
What is the value of your home? Find-out Now.. IT'S
FREE.
HOME-BUYERS FREE SERVICE: Before you buy it, you
must know how much it worths. What's the exact or
approximate value of it? FIND-OUT NOW!..
HOME INSPECTION: How to use home inspection
reports report to negotiate sale price? How to Identify a
Qualified and Reliable Home Inspector? How to
Interpret Home Inspection Reports?
FREE HOME ADVERTISEMENT FOR {FSBO}: For Sale
By Owner; Let us put your property on the market For
Sale. IT'S FREE -- Your listing will be available to
thousands of buyers & investors...
REAL ESTATE WANTED: Private Investors Want
Commercial Properties. Will Look at all income
producing properties. CONTACT US...
AMERICA'S WAY OF LIFE: UNITED STATES
Government Most Important Websites to know About!...
UNITED STATES CONSTITUTION: "CHARTERS OF
FREEDOM" Unknowm Information to learn about!...
GOVERNMENT INFORMATION CENTER: Federal. State,
Counties & Cities...
FREE CREDIT REPORT: Get a Free Credit Report From
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Banking & Finance: The more you know the closer you
are to accomplish great success. Business, Financial,
Commercial News & Commentary...
FREE FINANCIAL ADVICE: WAYS TO SAVE MONEY,
TO MAKE MONEY, AND GET OUT OF DEBT
FREE CREDIT HELP, CREDIT INFO: SAVE YOUR
CREDIT, RESCUE IT, FIX IT, PROTECT IT, INCREASE
YOUR SCORE...
INSURANCE 101: How to save money on your
insurance?
5 INSURANCE POLICIES EVERYONE SHOULD HAVE,
AND 15
INSURANCE POLICIES YOU MAY NOT NEED.
FORTUNE: National Association Of Securities Dealers
-{ NASDD / FINRA}. BEFORE YOU START INVESTING
ANY MONEY; LEARN THIS FIRST!...
FREE SERVICE, LICENSING HELP: Make a
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UNITED STATES CONSTITUTION: "CHARTERS OF
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GOVERNMENT INFORMATION CENTER: Federal. State,
Counties & Cities...
FREE CREDIT REPORT: Get a Free Credit Report From
all 3 Credit Bureaus
Banking & Finance: The more you know the closer you
are to accomplish great success. Business, Financial,
Commercial News & Commentary...
FREE FINANCIAL ADVICE: WAYS TO SAVE MONEY,
TO MAKE MONEY, AND GET OUT OF DEBT
FREE CREDIT HELP, CREDIT INFO: SAVE YOUR
CREDIT, RESCUE IT, FIX IT, PROTECT IT, INCREASE
YOUR SCORE...
INSURANCE 101: How to save money on your
insurance?
5 INSURANCE POLICIES EVERYONE SHOULD HAVE,
AND 15
INSURANCE POLICIES YOU MAY NOT NEED.
FORTUNE: National Association Of Securities Dealers
-{ NASDD / FINRA}. BEFORE YOU START INVESTING
ANY MONEY; LEARN THIS FIRST!...
FREE SERVICE, LICENSING HELP: Make a
Professional License, Renew a License, Check Status
of a License, Register a Business...
A Florida Real Estate Investment company is looking
for: Foreclosure Properties to buy. CASH OR TERMS.
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Millionaire Mind Set, Take Control of your Destiny. How to
Make Your First $1 Million Dollar?
Real Estate Learning Center: Foreclosure, REO'S, Short Sale,
Pre-construction.
Mortgage Loans Learning Center. Everything about mortgage
home loans
FORTUNE: National Association Of Securities Dealers - NASDD
/ FINRA. LEARN MORE... BEFORE YOU START INVESTING
ANY MONEY: LEARN THIS FIRST!
RICH GUIDE: WHY YOU AREN’T RICH? BUILDING
FINANCIAL WEALTH, OBTAIN FINANCIAL FREEDOM,
BECOME A RICH PERSON; YES YOU CAN
FREE: Home Value Report... {CMA] Real Estate Appraisal.
FREE SERVICE
Housing Finance Authority of Miami dade, Monroe, Broward,
and Palm Beach County. State & Federal Homebuyer's
Programs.
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GOVERNMENTS GENERAL INFORMATION CENTER: MIAMI
DADE, BROWARD, MONROE, PALM BEACH COUNTY
COUNT. STATE OF FLORIDA AND THE U.S. FEDERAL
GOVERNMENT.
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INSURANCE 101: THE IMPORTANCE OF INSURANCE IN
SOMEONE'S LIFE. How to save money on your insurance?
5 INSURANCE POLICIES EVERYONE SHOULD HAVE, AND
15 INSURANCE POLICIES YOU MAY NOT NEED.
INVESTMENT'S SECRETS REVEALED. THE ABC's OF
INVESTMENTS, Ways to Save. THE TRIANGLE OF SUCCESS!
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Identity Theft: Consumer Reports' advice on steps you can take
to protect your identity and what to do if you believe it's already
been compromised...
HUD HOMES: GOVERNMENT HOMES AND FORECLOSURE
PROPERTIES ARE AVAILABLE BELOW MARKET VALUE!
Title Insurance, what is it? And what is for? Cloud on title, what
does that really mean? And what are the benefits of using a
Real Estate Attorney. ---
REO'S -- REAL ESTATE OWNED FORECLOSURE. Buying
Bank Owned Properties (REO) --- Investing in Foreclosed Real
Estate for a Higher Return.
INVESTING / INVESTMENTS: METHOD AND TECHNIQUES
TO INVEST IN TODAY'S MARKET FOR A BETTER
TOMORROW
TAX SAVING, TAX HELP, Tax Strategies, Tax Advantage, Tax
Advice For All.
Make Your First $1 Million Dollar?
Real Estate Learning Center: Foreclosure, REO'S, Short Sale,
Pre-construction.
Mortgage Loans Learning Center. Everything about mortgage
home loans
FORTUNE: National Association Of Securities Dealers - NASDD
/ FINRA. LEARN MORE... BEFORE YOU START INVESTING
ANY MONEY: LEARN THIS FIRST!
RICH GUIDE: WHY YOU AREN’T RICH? BUILDING
FINANCIAL WEALTH, OBTAIN FINANCIAL FREEDOM,
BECOME A RICH PERSON; YES YOU CAN
FREE: Home Value Report... {CMA] Real Estate Appraisal.
FREE SERVICE
Housing Finance Authority of Miami dade, Monroe, Broward,
and Palm Beach County. State & Federal Homebuyer's
Programs.
FREE FINANCIAL ADVICE. WAYS TO SAVE MONEY, TO
MAKE MONEY, AND GET OUT OF DEBT!
GOVERNMENTS GENERAL INFORMATION CENTER: MIAMI
DADE, BROWARD, MONROE, PALM BEACH COUNTY
COUNT. STATE OF FLORIDA AND THE U.S. FEDERAL
GOVERNMENT.
FREE-CREDIT REPORT: Get a Free Credit Report From all 3
Credit Bureaus
INSURANCE 101: THE IMPORTANCE OF INSURANCE IN
SOMEONE'S LIFE. How to save money on your insurance?
5 INSURANCE POLICIES EVERYONE SHOULD HAVE, AND
15 INSURANCE POLICIES YOU MAY NOT NEED.
INVESTMENT'S SECRETS REVEALED. THE ABC's OF
INVESTMENTS, Ways to Save. THE TRIANGLE OF SUCCESS!
LEARN MORE...
Identity Theft: Consumer Reports' advice on steps you can take
to protect your identity and what to do if you believe it's already
been compromised...
HUD HOMES: GOVERNMENT HOMES AND FORECLOSURE
PROPERTIES ARE AVAILABLE BELOW MARKET VALUE!
Title Insurance, what is it? And what is for? Cloud on title, what
does that really mean? And what are the benefits of using a
Real Estate Attorney. ---
REO'S -- REAL ESTATE OWNED FORECLOSURE. Buying
Bank Owned Properties (REO) --- Investing in Foreclosed Real
Estate for a Higher Return.
INVESTING / INVESTMENTS: METHOD AND TECHNIQUES
TO INVEST IN TODAY'S MARKET FOR A BETTER
TOMORROW
TAX SAVING, TAX HELP, Tax Strategies, Tax Advantage, Tax
Advice For All.
REAL ESTATE FREE SERVICE: Real Estate is a road-map to
riches, it’s one of the best way to build wealth. Search For, & Buy
Property in Any City; Anywhere. Click Here...
FREE SERVICE: Real Estate Assistance Program For Home-Buyers
& sellers. FREE MONEY: EARN CASH BACK UP TO $2,500.00.
LEARN MORE HERE!...
REAL ESTATE GENERAL INFORMATION CENTER: Money-Making
Information You'll Need to Succeed in Real Estate...
Mortgage Loans Learning Center: Everything About Mortgage
Home Loans. What You Need to Know Before & After Taking a
Mortgage Loan..
FREE Home Value Report, {CMA - Home Appraisal} What is the
value of your home? Find-out Now.. IT'S FREE.
HOME-BUYERS FREE SERVICE: Before you buy it, you must know
how much it worths. What's the exact or approximate value of it?
FIND-OUT NOW!..
HOME INSPECTION: How to use home inspection reports report to
negotiate sale price? How to Identify a Qualified and Reliable
Home Inspector? How to Interpret Home Inspection Reports?
FREE HOME ADVERTISEMENT FOR {FSBO}: For Sale By Owner;
Let us put your property on the market For Sale. IT'S FREE -- Your
listing will be available to thousands of buyers & investors...
REAL ESTATE WANTED: Private Investors Want Commercial
Properties. Will Look at all income producing properties.
CONTACT US...
riches, it’s one of the best way to build wealth. Search For, & Buy
Property in Any City; Anywhere. Click Here...
FREE SERVICE: Real Estate Assistance Program For Home-Buyers
& sellers. FREE MONEY: EARN CASH BACK UP TO $2,500.00.
LEARN MORE HERE!...
REAL ESTATE GENERAL INFORMATION CENTER: Money-Making
Information You'll Need to Succeed in Real Estate...
Mortgage Loans Learning Center: Everything About Mortgage
Home Loans. What You Need to Know Before & After Taking a
Mortgage Loan..
FREE Home Value Report, {CMA - Home Appraisal} What is the
value of your home? Find-out Now.. IT'S FREE.
HOME-BUYERS FREE SERVICE: Before you buy it, you must know
how much it worths. What's the exact or approximate value of it?
FIND-OUT NOW!..
HOME INSPECTION: How to use home inspection reports report to
negotiate sale price? How to Identify a Qualified and Reliable
Home Inspector? How to Interpret Home Inspection Reports?
FREE HOME ADVERTISEMENT FOR {FSBO}: For Sale By Owner;
Let us put your property on the market For Sale. IT'S FREE -- Your
listing will be available to thousands of buyers & investors...
REAL ESTATE WANTED: Private Investors Want Commercial
Properties. Will Look at all income producing properties.
CONTACT US...
AMERICA'S WAY OF LIFE: UNITED STATES Government Most
Important Websites to know About!...
UNITED STATES CONSTITUTION: "CHARTERS OF FREEDOM"
Unknowm Information to learn about!...
GOVERNMENT INFORMATION CENTER: Federal. State, Counties &
Cities...
FREE CREDIT REPORT: Get a Free Credit Report From all 3 Credit
Bureaus
Banking & Finance: The more you know the closer you are to
accomplish great success. Business, Financial, Commercial News
& Commentary...
FREE FINANCIAL ADVICE: WAYS TO SAVE MONEY, TO MAKE
MONEY, AND GET OUT OF DEBT
FREE CREDIT HELP, CREDIT INFO: SAVE YOUR CREDIT, RESCUE
IT, FIX IT, PROTECT IT, INCREASE YOUR SCORE...
INSURANCE 101: How to save money on your insurance?
5 INSURANCE POLICIES EVERYONE SHOULD HAVE, AND 15
INSURANCE POLICIES YOU MAY NOT NEED.
FORTUNE: National Association Of Securities Dealers -{ NASDD /
FINRA}. BEFORE YOU START INVESTING ANY MONEY; LEARN THIS
FIRST!...
FREE SERVICE, LICENSING HELP: Make a Professional License,
Renew a License, Check Status of a License, Register a Business...
A Florida Real Estate Investment company is looking for:
Foreclosure Properties to buy. CASH OR TERMS. CONTACT US...
Important Websites to know About!...
UNITED STATES CONSTITUTION: "CHARTERS OF FREEDOM"
Unknowm Information to learn about!...
GOVERNMENT INFORMATION CENTER: Federal. State, Counties &
Cities...
FREE CREDIT REPORT: Get a Free Credit Report From all 3 Credit
Bureaus
Banking & Finance: The more you know the closer you are to
accomplish great success. Business, Financial, Commercial News
& Commentary...
FREE FINANCIAL ADVICE: WAYS TO SAVE MONEY, TO MAKE
MONEY, AND GET OUT OF DEBT
FREE CREDIT HELP, CREDIT INFO: SAVE YOUR CREDIT, RESCUE
IT, FIX IT, PROTECT IT, INCREASE YOUR SCORE...
INSURANCE 101: How to save money on your insurance?
5 INSURANCE POLICIES EVERYONE SHOULD HAVE, AND 15
INSURANCE POLICIES YOU MAY NOT NEED.
FORTUNE: National Association Of Securities Dealers -{ NASDD /
FINRA}. BEFORE YOU START INVESTING ANY MONEY; LEARN THIS
FIRST!...
FREE SERVICE, LICENSING HELP: Make a Professional License,
Renew a License, Check Status of a License, Register a Business...
A Florida Real Estate Investment company is looking for:
Foreclosure Properties to buy. CASH OR TERMS. CONTACT US...
REAL ESTATE FREE SERVICE: Real Estate is a road-map
to riches, it’s one of the best way to build wealth.
Search For, & Buy Property in Any City; Anywhere. Click
Here...
FREE SERVICE: Real Estate Assistance Program For
Home-Buyers & sellers. FREE MONEY: EARN CASH
BACK UP TO $2,500.00. LEARN MORE HERE!...
REAL ESTATE GENERAL INFORMATION CENTER: Money-
Making Information You'll Need to Succeed in Real
Estate...
Mortgage Loans Learning Center: Everything About
Mortgage Home Loans. What You Need to Know Before &
After Taking a Mortgage Loan..
FREE Home Value Report, {CMA - Home Appraisal} What
is the value of your home? Find-out Now.. IT'S FREE.
HOME-BUYERS FREE SERVICE: Before you buy it, you
must know how much it worths. What's the exact or
approximate value of it? FIND-OUT NOW!..
HOME INSPECTION: How to use home inspection reports
report to negotiate sale price? How to Identify a Qualified
and Reliable Home Inspector? How to Interpret Home
Inspection Reports?
FREE HOME ADVERTISEMENT FOR {FSBO}: For Sale By
Owner; Let us put your property on the market For Sale.
IT'S FREE -- Your listing will be available to thousands of
buyers & investors...
REAL ESTATE WANTED: Private Investors Want
Commercial Properties. Will Look at all income
producing properties. CONTACT US...
to riches, it’s one of the best way to build wealth.
Search For, & Buy Property in Any City; Anywhere. Click
Here...
FREE SERVICE: Real Estate Assistance Program For
Home-Buyers & sellers. FREE MONEY: EARN CASH
BACK UP TO $2,500.00. LEARN MORE HERE!...
REAL ESTATE GENERAL INFORMATION CENTER: Money-
Making Information You'll Need to Succeed in Real
Estate...
Mortgage Loans Learning Center: Everything About
Mortgage Home Loans. What You Need to Know Before &
After Taking a Mortgage Loan..
FREE Home Value Report, {CMA - Home Appraisal} What
is the value of your home? Find-out Now.. IT'S FREE.
HOME-BUYERS FREE SERVICE: Before you buy it, you
must know how much it worths. What's the exact or
approximate value of it? FIND-OUT NOW!..
HOME INSPECTION: How to use home inspection reports
report to negotiate sale price? How to Identify a Qualified
and Reliable Home Inspector? How to Interpret Home
Inspection Reports?
FREE HOME ADVERTISEMENT FOR {FSBO}: For Sale By
Owner; Let us put your property on the market For Sale.
IT'S FREE -- Your listing will be available to thousands of
buyers & investors...
REAL ESTATE WANTED: Private Investors Want
Commercial Properties. Will Look at all income
producing properties. CONTACT US...
C-CORPORATION vs S-CORPORATION vs LLC
DIFFERENCE BETWEEN S-CORPORATION & LLC
While the S corporation's special tax status eliminates
double taxation, it lacks the flexibility of an LLC in allocating
income to the owners. An LLC may offer several classes of
membership interests while an ‘S’ corporation may only
have one class of stock.
Any number of individuals or entities may own interests in
an LLC. However, ownership interest in an ‘S’ corporation
is limited to no more than 100 shareholders. Also, ‘S’
corporations cannot be owned by ‘C’ corporations, other S
corporations, many trusts, LLCs, partnerships, or
nonresident aliens. Also, LLCs are allowed to have
subsidiaries without restriction.
DIFFERENCE BETWEEN CORPORATION & LLC
There are many important differences between the
corporation and LLC. The entities are taxed differently. An
LLC is a pass-through tax entity. This means that the
income to the entity is not taxed at the entity level; however,
the entity does complete a tax return. The income or loss as
shown on this return is "passed through" the business
entity to the individual shareholders or interest holders, and
is reported on their individual tax returns.
With a standard corporation, the corporation is a separately
taxable entity. Corporations are treated as a separate legal
taxable entity for income tax purposes. Therefore,
corporations pay tax on their earnings. If corporate earnings
are distributed to shareholders in the form of dividends, the
corporation does not receive the reasonable business
expense deduction, and dividend income is taxed as
regular income to the shareholders.
LLC's are less rigid in their structure than corporations, so
you have more flexibility in adapting the LLC to your unique
business. The Operating Agreement of a LLC can be
structured in a limitless amount of ways.
Formality : A corporation is a formal entity with officers and
directors (at least one of each) required. A LLC, on the
other hand, can be "member managed" and run in a less
formal way. For small, start-up businesses, less formality
means you can focus on making money rather than
administrative work.
DIFFERENCE BETWEEN S-CORPORATION & C-
CORPORATION
All corporations start as "C" corporations and are required
to pay income tax on taxable income generated by the
corporation. A C corporation becomes a S corporation by
completing and filing federal form 2553 with the IRS. An S
corporation's net income or loss is "passed-through" to the
shareholders and are included in their personal tax returns.
Because income is NOT taxed at the corporate level, there
is no double taxation as with C corporations. Subchapter S
corporations, as they are also called, are restricted to
having no more than 100 shareholders.
DIFFERENCE BETWEEN S-CORPORATION & LLC
While the S corporation's special tax status eliminates
double taxation, it lacks the flexibility of an LLC in allocating
income to the owners. An LLC may offer several classes of
membership interests while an ‘S’ corporation may only
have one class of stock.
Any number of individuals or entities may own interests in
an LLC. However, ownership interest in an ‘S’ corporation
is limited to no more than 100 shareholders. Also, ‘S’
corporations cannot be owned by ‘C’ corporations, other S
corporations, many trusts, LLCs, partnerships, or
nonresident aliens. Also, LLCs are allowed to have
subsidiaries without restriction.
DIFFERENCE BETWEEN CORPORATION & LLC
There are many important differences between the
corporation and LLC. The entities are taxed differently. An
LLC is a pass-through tax entity. This means that the
income to the entity is not taxed at the entity level; however,
the entity does complete a tax return. The income or loss as
shown on this return is "passed through" the business
entity to the individual shareholders or interest holders, and
is reported on their individual tax returns.
With a standard corporation, the corporation is a separately
taxable entity. Corporations are treated as a separate legal
taxable entity for income tax purposes. Therefore,
corporations pay tax on their earnings. If corporate earnings
are distributed to shareholders in the form of dividends, the
corporation does not receive the reasonable business
expense deduction, and dividend income is taxed as
regular income to the shareholders.
LLC's are less rigid in their structure than corporations, so
you have more flexibility in adapting the LLC to your unique
business. The Operating Agreement of a LLC can be
structured in a limitless amount of ways.
Formality : A corporation is a formal entity with officers and
directors (at least one of each) required. A LLC, on the
other hand, can be "member managed" and run in a less
formal way. For small, start-up businesses, less formality
means you can focus on making money rather than
administrative work.
DIFFERENCE BETWEEN S-CORPORATION & C-
CORPORATION
All corporations start as "C" corporations and are required
to pay income tax on taxable income generated by the
corporation. A C corporation becomes a S corporation by
completing and filing federal form 2553 with the IRS. An S
corporation's net income or loss is "passed-through" to the
shareholders and are included in their personal tax returns.
Because income is NOT taxed at the corporate level, there
is no double taxation as with C corporations. Subchapter S
corporations, as they are also called, are restricted to
having no more than 100 shareholders.
What is a Corporation?
A Corporation is also referred to as a standard corporation. It is also called a C-Corporation or a Regular
Corporation. A Corporation is a legal form of organization of persons and material resources, chartered by
the state, for the purpose of conducting business and may have an unlimited number of shareholders, which
may include shareholders who are foreign citizens. A Corporation may be public - one in which shares is
offered for sale to the public or privately held - one in which shares is not sold to the public. Usually shares
are held by the founders, by board members and by private investors, such as venture capitalists, who may
or may not sit on the board of directors.
Shareholders are protected from the corporation's liabilities. "Double taxation" frequently occurs, because
the corporation is taxed on its profits, and shareholders are also taxed on the distributions they receive, such
as profit sharing payments or dividends
The most common type of incorporation is the C Corporation, which is a for-profit, state-incorporated
business. A company registration is done with state authorities and must abide by corporate laws in the state
where it is incorporated.
To incorporate or register company, you will need to register your business name, file a certificate of
incorporation or articles of incorporation and pay a fee. You will also need to draft corporate bylaws and
hold a board of director's meeting.
Why should I Incorporate?
Incorporating is one of the best ways a business owner can protect his or her personal assets. Most people
choose to incorporate solely for this reason, but there are other advantages as well. For example, the
corporate business structure saves you money in taxes, provides greater business flexibility, avoids audit
chances, better itemization and lets you more easily raise capital.
There are many advantages to incorporate your business. Liability protection of your personal assets is one
of the primary reasons why a small business will form a corporation. Incorporating helps to separate your
personal assets from that of your business. A corporation is a legal entity that exists separately from its
owners or shareholders. Typically, shareholders are not liable for the debts and obligations of the
corporation or from any litigation where the corporation is the defendant in most cases. In a partnership or
sole proprietorship, the creditors can go after the owner's personal assets if the company assets are not
enough to settle a claim in most cases.
In company registration or corporation formation, prospective shareholders exchange money, property, or
both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole
proprietorship to figure its taxable income. A corporation can also take special deductions for federal
income tax purposes; a Corporation is recognized as a separate taxpaying entity. Corporation conducts
business, realizes net income or loss, pays taxes and distributes profits to shareholders.
The profit of a Corporation is taxed to the corporation when earned, and then is taxed to the shareholders
when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction
when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.
Advantages of Incorporating
Reduces Personal Liability: In most cases owners are not personally liable for the company's losses or debts.
Their investments in the registered company are their only financial risk Incorporating helps separate an
individual's identity from that of his or her business. Insurance may still be necessary, but incorporation
contributes an added layer of protection.
Tax Savings: There are a number of tax benefits for doing business under incorporation. Depending on your
business income, incorporating a Corporation could lower your tax rate. Careful planning of entity type can
result in lower overall tax rates. Even if your small business is quite profitable, a corporation is entitled to so
many deductions. For example, as the owner of a corporation, your salary and those of your employees are
tax-deductible for the business.
Reduces Likelihood of an IRS Examination: IRS Form 1040 and Schedule C (Profit or Loss from a
Business), particularly of higher gross income levels, is the target of many IRS Audits. Incorporated
businesses have a much lower audit rate, even if they have high income levels.
Anonymity: A Corporation can be established in such a way that shareholders/owners remain anonymous.
Often this same anonymity can be accomplished for officers and directors.
Adds Credibility: A corporate structure communicates permanence and credibility. Even a company with
only one stockholder and employee may incorporate.
Easier Access to Capital Funding : With a corporation, investors are easier to attract through the sale of
stock.
Easier Transfer of Ownership: Through the sale of stock, ownership of a corporation may be transferred
without substantially disrupting operations. The need for complex legal documentation is also reduced.
Shareholders: Your registered company will include shareholders, and you can take the company public.
You can also issue stock or stock options to employees. The shareholders have ownership in the
incorporated company, the Board of Directors governs the business, and elected officers manage the
day-to-day activities. Registered company must adhere to corporate tax laws and file corporate taxes
regularly.
Longevity: The board carries on the corporation, not the owner. That means that a corporation formation
can last longer than an owner-based company such as an LLC.
C-Corporation VS S-Corporation VS LLC
If you're incorporating your small business you may have heard that you should "form corporation" or
"C-Corporation."
In a C-Corporation, the corporation pays income tax on profits of the corporation. If the corporation pays a
dividend to the shareholders, this money is taxed again as income to the shareholders. It may not be as bad
as it sounds, though. If you are working for your corporation you should be paid a salary. This salary is
deducted from the income of the corporation before taxes, so it will only be taxed once. Depending on the
business, salaries may use up most or all of the profit. As long as the salary is not unreasonably high, the IRS
should not challenge it. Fringe benefits for employees such as health insurance may also be deducted by a
C-Corporation, but not by an S-Corporation. For a profitable and growing company it may be better to be a
C-Corporation. In a C-Corporation profits beyond salaries and other deductible expenses can be used by the
company for growth rather than being distributed to the shareholders and creating taxable income for them.
An S-Corporation does not have the double level of taxation, corporate and individual, that a C-Corporation
has. Instead, profits and losses are distributed among shareholders who report that income or loss on their
own federal income taxes. This is the main advantage to electing S-Corporation status.
A Corporation is also referred to as a standard corporation. It is also called a C-Corporation or a Regular
Corporation. A Corporation is a legal form of organization of persons and material resources, chartered by
the state, for the purpose of conducting business and may have an unlimited number of shareholders, which
may include shareholders who are foreign citizens. A Corporation may be public - one in which shares is
offered for sale to the public or privately held - one in which shares is not sold to the public. Usually shares
are held by the founders, by board members and by private investors, such as venture capitalists, who may
or may not sit on the board of directors.
Shareholders are protected from the corporation's liabilities. "Double taxation" frequently occurs, because
the corporation is taxed on its profits, and shareholders are also taxed on the distributions they receive, such
as profit sharing payments or dividends
The most common type of incorporation is the C Corporation, which is a for-profit, state-incorporated
business. A company registration is done with state authorities and must abide by corporate laws in the state
where it is incorporated.
To incorporate or register company, you will need to register your business name, file a certificate of
incorporation or articles of incorporation and pay a fee. You will also need to draft corporate bylaws and
hold a board of director's meeting.
Why should I Incorporate?
Incorporating is one of the best ways a business owner can protect his or her personal assets. Most people
choose to incorporate solely for this reason, but there are other advantages as well. For example, the
corporate business structure saves you money in taxes, provides greater business flexibility, avoids audit
chances, better itemization and lets you more easily raise capital.
There are many advantages to incorporate your business. Liability protection of your personal assets is one
of the primary reasons why a small business will form a corporation. Incorporating helps to separate your
personal assets from that of your business. A corporation is a legal entity that exists separately from its
owners or shareholders. Typically, shareholders are not liable for the debts and obligations of the
corporation or from any litigation where the corporation is the defendant in most cases. In a partnership or
sole proprietorship, the creditors can go after the owner's personal assets if the company assets are not
enough to settle a claim in most cases.
In company registration or corporation formation, prospective shareholders exchange money, property, or
both, for the corporation's capital stock. A corporation generally takes the same deductions as a sole
proprietorship to figure its taxable income. A corporation can also take special deductions for federal
income tax purposes; a Corporation is recognized as a separate taxpaying entity. Corporation conducts
business, realizes net income or loss, pays taxes and distributes profits to shareholders.
The profit of a Corporation is taxed to the corporation when earned, and then is taxed to the shareholders
when distributed as dividends. This creates a double tax. The corporation does not get a tax deduction
when it distributes dividends to shareholders. Shareholders cannot deduct any loss of the corporation.
Advantages of Incorporating
Reduces Personal Liability: In most cases owners are not personally liable for the company's losses or debts.
Their investments in the registered company are their only financial risk Incorporating helps separate an
individual's identity from that of his or her business. Insurance may still be necessary, but incorporation
contributes an added layer of protection.
Tax Savings: There are a number of tax benefits for doing business under incorporation. Depending on your
business income, incorporating a Corporation could lower your tax rate. Careful planning of entity type can
result in lower overall tax rates. Even if your small business is quite profitable, a corporation is entitled to so
many deductions. For example, as the owner of a corporation, your salary and those of your employees are
tax-deductible for the business.
Reduces Likelihood of an IRS Examination: IRS Form 1040 and Schedule C (Profit or Loss from a
Business), particularly of higher gross income levels, is the target of many IRS Audits. Incorporated
businesses have a much lower audit rate, even if they have high income levels.
Anonymity: A Corporation can be established in such a way that shareholders/owners remain anonymous.
Often this same anonymity can be accomplished for officers and directors.
Adds Credibility: A corporate structure communicates permanence and credibility. Even a company with
only one stockholder and employee may incorporate.
Easier Access to Capital Funding : With a corporation, investors are easier to attract through the sale of
stock.
Easier Transfer of Ownership: Through the sale of stock, ownership of a corporation may be transferred
without substantially disrupting operations. The need for complex legal documentation is also reduced.
Shareholders: Your registered company will include shareholders, and you can take the company public.
You can also issue stock or stock options to employees. The shareholders have ownership in the
incorporated company, the Board of Directors governs the business, and elected officers manage the
day-to-day activities. Registered company must adhere to corporate tax laws and file corporate taxes
regularly.
Longevity: The board carries on the corporation, not the owner. That means that a corporation formation
can last longer than an owner-based company such as an LLC.
C-Corporation VS S-Corporation VS LLC
If you're incorporating your small business you may have heard that you should "form corporation" or
"C-Corporation."
In a C-Corporation, the corporation pays income tax on profits of the corporation. If the corporation pays a
dividend to the shareholders, this money is taxed again as income to the shareholders. It may not be as bad
as it sounds, though. If you are working for your corporation you should be paid a salary. This salary is
deducted from the income of the corporation before taxes, so it will only be taxed once. Depending on the
business, salaries may use up most or all of the profit. As long as the salary is not unreasonably high, the IRS
should not challenge it. Fringe benefits for employees such as health insurance may also be deducted by a
C-Corporation, but not by an S-Corporation. For a profitable and growing company it may be better to be a
C-Corporation. In a C-Corporation profits beyond salaries and other deductible expenses can be used by the
company for growth rather than being distributed to the shareholders and creating taxable income for them.
An S-Corporation does not have the double level of taxation, corporate and individual, that a C-Corporation
has. Instead, profits and losses are distributed among shareholders who report that income or loss on their
own federal income taxes. This is the main advantage to electing S-Corporation status.
Ten Steps to Hiring Your First EmployeeGuide for New Employers
The good news is that business is booming. The bad news is there's only one of you. It's time to take the plunge and hire some help.
There are many good sources of information about finding the right people, writing job descriptions, interviewing candidates, and
managing people once they are on board. While those are all important issues, understanding your regulatory requirements as an
employer is crucial to the success of your business. This guide lays out ten easy steps for new employers to follow to ensure compliance
with key federal and state regulations.
Step 1: Obtain an Employer Identification Number (EIN)
Before hiring employees, you need to get an employment identification number (EIN) form the U.S. Internal Revenue Service. The EIN
is often referred to as an Employer Tax ID or as Form SS-4. The EIN is necessary for reporting taxes and other documents to the IRS. In
addition, the EIN is necessary when reporting information about your employees to state agencies. To obtain an EIN, you can apply
online or contact the IRS directly.
U.S. Internal Revenue Service
Phone: 1-800-829-4933
Guide to the Employer Identification Number
Apply for an EIN Online
Step 2: Set up Records for Withholding Taxes
The IRS states that you must keep records of employment taxes for at least four years. Also, keep good records for your business to help
you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible
expenses, prepare your tax returns, and support items reported on tax returns.
Federal Income Tax Withholding (Form W-4)
Every employee must provide an employer with a signed withholding exemption certificate (Form W-4) on or before the date of
employment. The employer must then submit Form W-4 to the IRS to ensure. For specific information on employer responsibilities
regarding withholding of federal taxes, read the IRS' Employer's Tax Guide.
Federal Wage and Tax Statement (Form W-2)
On an annual basis, employers must report to the federal government wages paid and taxes withheld for each employee. This report is
filed using Form W-2, Wage and Tax Statement. Employers must complete a Form W-2 for each employee to whom they pay a salary,
wage, or other compensation.
Employers must send Copy A of Forms W-2 (Wage and Tax Statement) to the Social Security Administration (SSA) by the last day of
February (or last day of March if you file electronically) to report the wages and taxes of your employees for the previous calendar year.
In addition, employers should send copies of Form W-2 to their employees by January 31 of the year following the reporting period.
Visit the Social Security Administration's Employer W-2 Filing Instructions and Information for further guidance and assistance.
State Taxes
Depending on the state where your employees are located, you may be required to withhold state income taxes. Visit your state tax
agency for further information.
Step 3: Employee Eligibility Verification (Form I-9)
Federal law requires employers to verify an employee's eligibility to work in the United States. Within three days of hire employers must
complete an Employment Eligibility Verification Form, commonly referred to as an I-9 form, and by examining acceptable forms of
documentation supplied by the employee, confirm the employee's citizenship or eligibility to work in the United States. Employers can
only request documentation specified on the I-9 form. Employers who ask for other types of documentation not listed on the I-9 form may
be subject to discrimination lawsuits.
Employers do not file the I-9 with the federal government. Rather, an employer is required to keep an I-9 form on file for 3 years after the
date of hire or 1 year after the date the employee's employment is terminated, whichever is later. The U.S. Immigration and Customs
Enforcement (ICE) agency conducts routine workplace audits to ensure that employers are properly completing and retaining I-9 forms,
and that employee information on I-9 forms matches government records.
Download Form I-9 (Employment Eligibility Verification)
All U.S. employers are responsible for completion and retention of Form I-9 for each individual they hire for employment in the United
States, including citizens and non-citizens.
Instructions for Completing the I-9: Handbook for Employers
A comprehensive guide to completing Form I-9, Employment Eligibility Verification.
Small Business Guide to Immigration Regulations
Provides a summary of immigration laws most important to small business owners, including information about completing the I-9 form.
Employers can use information taken from the Form I-9 to verify electronically the employment eligibility of newly hired employees
through E-Verify. To get started register with E-Verify to virtually eliminate Social Security mismatch letters, improve the accuracy of
wage and tax reporting, protect jobs for authorized workers, and help maintain a legal workforce.
Step 4: Register with Your States New Hire Reporting Program
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 requires all employers to report newly hired and re-hired
employees to a state directory within 20 days of their hire or rehire date.
Visit the New Hires Reporting Requirements page to learn how to register with your state's New Hire Reporting System.
Step 5: Obtain Workers' Compensation Insurance
Businesses with employees are required to carry Workers' Compensation Insurance coverage through a commercial carrier, on a
self-insured basis, or through the state Workers' Compensation Insurance program. Visit your state's Workers' Compensation Office more
information on your state's program
Step 6: Unemployment Insurance Tax Registration
Businesses with employees are required to pay unemployment insurance taxes under certain conditions. If your business is required to
pay these taxes, you must register your business with your state's workforce agency. The State Taxes page includes links to your state's
agency.
Step 7: Obtain Disability Insurance (If Required)
Some states require employers to provide partial wage replacement insurance coverage to their eligible employees for non-work related
sickness or injury. Currently, if your employees are located in any of the following states, you are required to purchase disability
insurance:
California - Employment Development Department
Hawaii - Unemployment Insurance Division
New Jersey - Dept of Labor and Workforce Development
New York - New York State Workers' Compensation Board
Puerto Rico - Departamento del Trabajo y Recursos Humanos / Department of Labor and Human Resources
Rhode Island - Rhode Island Dept of Labor and Training
Step 8: Post Required Notices
Employers are required by state and federal laws to prominently display certain posters in the workplace that inform employees of their
rights and employer responsibilities under labor laws. These posters available from free from federal and state labor agencies. Visit the
Workplace Posters page for specific federal and state posters you'll need for your business.
Step 9: File Your Taxes
If you are new employer, there are new federal and state tax filing requirements that apply to you.
Generally, each quarter, employers who pay wages subject to income tax withholding, social security, and Medicare taxes must file IRS
Form 941, Employer's Quarterly Tax Return. Small businesses an annual income tax liability of $1,000 or less may file IRS Form 944,
Employer's Annual Federal Tax Return instead of Form 941.
You must also file IRS Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, if you paid wages of $1,500 or more in
any calendar quarter or you had one or more employees work for you in any 20 or more different weeks of the year.
New and existing employers should consult IRS' Employer's Tax Guide to understand all their federal tax filing requirements.
Visit your state tax agency for specific tax filing requirements for employers.
Step 10: Get Organized and Keep Yourself Informed
Being a good employer doesn't stop with fulfilling your various tax and reporting obligations. Maintaining a healthy and fair workplace,
providing benefits, and keeping employees informed about your company's policies are key to your business' success. Here are some
additional steps you should take after you've hired your employees:
Set up Recordkeeping
In addition to requirements for keeping payroll records of your employees for tax purposes, certain federal employment laws also require
you to keep records about your employees. You may be subject to state recordkeeping requirements as well. Therefore, it's good
practice to set up a sound, organized system for maintaining all personnel records. The following
Adopt Workplace Safety Practices
The Occupational Safety and Health Administration's (OSHA) Quick Start tool provides a clear, step-by-step guide that helps you
identify many of the major OSHA requirements and guidance materials that may apply to your workplace.
Understand Employee Benefit Plans
If you will be providing benefits to your employees, you should become familiar with the uniform minimum standards required by federal
law to ensure that employee benefit plans are established and maintained in a fair and financially sound manner. See the U.S.
Department of Labor's Employment Law Guide's chapter on Employee Benefit Plans for more information.
The good news is that business is booming. The bad news is there's only one of you. It's time to take the plunge and hire some help.
There are many good sources of information about finding the right people, writing job descriptions, interviewing candidates, and
managing people once they are on board. While those are all important issues, understanding your regulatory requirements as an
employer is crucial to the success of your business. This guide lays out ten easy steps for new employers to follow to ensure compliance
with key federal and state regulations.
Step 1: Obtain an Employer Identification Number (EIN)
Before hiring employees, you need to get an employment identification number (EIN) form the U.S. Internal Revenue Service. The EIN
is often referred to as an Employer Tax ID or as Form SS-4. The EIN is necessary for reporting taxes and other documents to the IRS. In
addition, the EIN is necessary when reporting information about your employees to state agencies. To obtain an EIN, you can apply
online or contact the IRS directly.
U.S. Internal Revenue Service
Phone: 1-800-829-4933
Guide to the Employer Identification Number
Apply for an EIN Online
Step 2: Set up Records for Withholding Taxes
The IRS states that you must keep records of employment taxes for at least four years. Also, keep good records for your business to help
you monitor the progress of your business, prepare your financial statements, identify source of receipts, keep track of deductible
expenses, prepare your tax returns, and support items reported on tax returns.
Federal Income Tax Withholding (Form W-4)
Every employee must provide an employer with a signed withholding exemption certificate (Form W-4) on or before the date of
employment. The employer must then submit Form W-4 to the IRS to ensure. For specific information on employer responsibilities
regarding withholding of federal taxes, read the IRS' Employer's Tax Guide.
Federal Wage and Tax Statement (Form W-2)
On an annual basis, employers must report to the federal government wages paid and taxes withheld for each employee. This report is
filed using Form W-2, Wage and Tax Statement. Employers must complete a Form W-2 for each employee to whom they pay a salary,
wage, or other compensation.
Employers must send Copy A of Forms W-2 (Wage and Tax Statement) to the Social Security Administration (SSA) by the last day of
February (or last day of March if you file electronically) to report the wages and taxes of your employees for the previous calendar year.
In addition, employers should send copies of Form W-2 to their employees by January 31 of the year following the reporting period.
Visit the Social Security Administration's Employer W-2 Filing Instructions and Information for further guidance and assistance.
State Taxes
Depending on the state where your employees are located, you may be required to withhold state income taxes. Visit your state tax
agency for further information.
Step 3: Employee Eligibility Verification (Form I-9)
Federal law requires employers to verify an employee's eligibility to work in the United States. Within three days of hire employers must
complete an Employment Eligibility Verification Form, commonly referred to as an I-9 form, and by examining acceptable forms of
documentation supplied by the employee, confirm the employee's citizenship or eligibility to work in the United States. Employers can
only request documentation specified on the I-9 form. Employers who ask for other types of documentation not listed on the I-9 form may
be subject to discrimination lawsuits.
Employers do not file the I-9 with the federal government. Rather, an employer is required to keep an I-9 form on file for 3 years after the
date of hire or 1 year after the date the employee's employment is terminated, whichever is later. The U.S. Immigration and Customs
Enforcement (ICE) agency conducts routine workplace audits to ensure that employers are properly completing and retaining I-9 forms,
and that employee information on I-9 forms matches government records.
Download Form I-9 (Employment Eligibility Verification)
All U.S. employers are responsible for completion and retention of Form I-9 for each individual they hire for employment in the United
States, including citizens and non-citizens.
Instructions for Completing the I-9: Handbook for Employers
A comprehensive guide to completing Form I-9, Employment Eligibility Verification.
Small Business Guide to Immigration Regulations
Provides a summary of immigration laws most important to small business owners, including information about completing the I-9 form.
Employers can use information taken from the Form I-9 to verify electronically the employment eligibility of newly hired employees
through E-Verify. To get started register with E-Verify to virtually eliminate Social Security mismatch letters, improve the accuracy of
wage and tax reporting, protect jobs for authorized workers, and help maintain a legal workforce.
Step 4: Register with Your States New Hire Reporting Program
The Personal Responsibility and Work Opportunity Reconciliation Act of 1996 requires all employers to report newly hired and re-hired
employees to a state directory within 20 days of their hire or rehire date.
Visit the New Hires Reporting Requirements page to learn how to register with your state's New Hire Reporting System.
Step 5: Obtain Workers' Compensation Insurance
Businesses with employees are required to carry Workers' Compensation Insurance coverage through a commercial carrier, on a
self-insured basis, or through the state Workers' Compensation Insurance program. Visit your state's Workers' Compensation Office more
information on your state's program
Step 6: Unemployment Insurance Tax Registration
Businesses with employees are required to pay unemployment insurance taxes under certain conditions. If your business is required to
pay these taxes, you must register your business with your state's workforce agency. The State Taxes page includes links to your state's
agency.
Step 7: Obtain Disability Insurance (If Required)
Some states require employers to provide partial wage replacement insurance coverage to their eligible employees for non-work related
sickness or injury. Currently, if your employees are located in any of the following states, you are required to purchase disability
insurance:
California - Employment Development Department
Hawaii - Unemployment Insurance Division
New Jersey - Dept of Labor and Workforce Development
New York - New York State Workers' Compensation Board
Puerto Rico - Departamento del Trabajo y Recursos Humanos / Department of Labor and Human Resources
Rhode Island - Rhode Island Dept of Labor and Training
Step 8: Post Required Notices
Employers are required by state and federal laws to prominently display certain posters in the workplace that inform employees of their
rights and employer responsibilities under labor laws. These posters available from free from federal and state labor agencies. Visit the
Workplace Posters page for specific federal and state posters you'll need for your business.
Step 9: File Your Taxes
If you are new employer, there are new federal and state tax filing requirements that apply to you.
Generally, each quarter, employers who pay wages subject to income tax withholding, social security, and Medicare taxes must file IRS
Form 941, Employer's Quarterly Tax Return. Small businesses an annual income tax liability of $1,000 or less may file IRS Form 944,
Employer's Annual Federal Tax Return instead of Form 941.
You must also file IRS Form 940, Employer's Annual Federal Unemployment (FUTA) Tax Return, if you paid wages of $1,500 or more in
any calendar quarter or you had one or more employees work for you in any 20 or more different weeks of the year.
New and existing employers should consult IRS' Employer's Tax Guide to understand all their federal tax filing requirements.
Visit your state tax agency for specific tax filing requirements for employers.
Step 10: Get Organized and Keep Yourself Informed
Being a good employer doesn't stop with fulfilling your various tax and reporting obligations. Maintaining a healthy and fair workplace,
providing benefits, and keeping employees informed about your company's policies are key to your business' success. Here are some
additional steps you should take after you've hired your employees:
Set up Recordkeeping
In addition to requirements for keeping payroll records of your employees for tax purposes, certain federal employment laws also require
you to keep records about your employees. You may be subject to state recordkeeping requirements as well. Therefore, it's good
practice to set up a sound, organized system for maintaining all personnel records. The following
Adopt Workplace Safety Practices
The Occupational Safety and Health Administration's (OSHA) Quick Start tool provides a clear, step-by-step guide that helps you
identify many of the major OSHA requirements and guidance materials that may apply to your workplace.
Understand Employee Benefit Plans
If you will be providing benefits to your employees, you should become familiar with the uniform minimum standards required by federal
law to ensure that employee benefit plans are established and maintained in a fair and financially sound manner. See the U.S.
Department of Labor's Employment Law Guide's chapter on Employee Benefit Plans for more information.
10 Steps to Starting a Business Starting a business involves making key financial
decisions and completing a series of legal activities. This guide provides
information to help you plan, prepare, and manage your business.
Step 1:
Research and Plan Your Business
Use these tools and resources to help you prepare your business plan and become
a successful business owner.
Step 2:
Get Business Assistance and Training
Take advantage of free training and counseling services, from preparing a
business plan to getting financing, and help expanding and relocating a business.
Step 3:
Choose a Business Location
Get advice about choosing a customer-friendly location and complying with
zoning laws.
Step 4:
Finance Your Business
Find government backed loans, venture capital and research grants to help you
get started.
Step 5:
Determine the Legal Structure of Your Business
Decide whether you are going to form a sole proprietorship, partnership, LLC,
corporation, non-profit or cooperative.
Step 6:
Register a Business Name ("Doing Business As")
Register your business name with your state government.
Step 7:
Get a Tax Identification Number
Learn which tax identification number you'll need to obtain from the IRS and your
state revenue agency.
Step 8:
Register for State and Local Taxes
Register with your state to obtain a tax identification number, workers'
compensation, unemployment and disability insurance.
Step 9:
Obtain Business Licenses and Permits
Get a list of federal, state and local licenses and permits required for your
business.
Step 10:
Employer Responsibilities
Learn the legal steps you need to take to hire employees.
decisions and completing a series of legal activities. This guide provides
information to help you plan, prepare, and manage your business.
Step 1:
Research and Plan Your Business
Use these tools and resources to help you prepare your business plan and become
a successful business owner.
Step 2:
Get Business Assistance and Training
Take advantage of free training and counseling services, from preparing a
business plan to getting financing, and help expanding and relocating a business.
Step 3:
Choose a Business Location
Get advice about choosing a customer-friendly location and complying with
zoning laws.
Step 4:
Finance Your Business
Find government backed loans, venture capital and research grants to help you
get started.
Step 5:
Determine the Legal Structure of Your Business
Decide whether you are going to form a sole proprietorship, partnership, LLC,
corporation, non-profit or cooperative.
Step 6:
Register a Business Name ("Doing Business As")
Register your business name with your state government.
Step 7:
Get a Tax Identification Number
Learn which tax identification number you'll need to obtain from the IRS and your
state revenue agency.
Step 8:
Register for State and Local Taxes
Register with your state to obtain a tax identification number, workers'
compensation, unemployment and disability insurance.
Step 9:
Obtain Business Licenses and Permits
Get a list of federal, state and local licenses and permits required for your
business.
Step 10:
Employer Responsibilities
Learn the legal steps you need to take to hire employees.
Instantly Search Millions of Public Records & Resources Using Our Public Record Databases.
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• Search for ALL Public Records
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• Plus Get Unlimited Public Record Checks
By joining you get Unlimited Access...
to our ENTIRE Private-Only Members Area. This includes fully organized databases, resources and data
centers you can personally use to conduct your own investigations from the privacy of your own home just
like the detectives do!
All Public Records In One Site:
Search any record you're looking for in 1 minute
By using our 100% legal and fully organized databases, you will have access to complete research tools for
obtaining public information about practically anyone from the privacy of your own home or office.
Public Record Sites Reviewed
Discover the most comprehensive public records websites available today;
• Search for ALL Public Records
• Lookup Sex Offenders listed in Your Neighborhood
• Find Court & Criminal Records of Inmates Serving Time
• Locate People's Phone Numbers & Addresses
• Lookup Old Marriage Records for Your Family History
• Lookup Death Records of Your Ancestors
• Search Civil Records
• Find Census Records
• Search Businesses & Bankruptcies
• Plus Get Unlimited Public Record Checks
By joining you get Unlimited Access...
to our ENTIRE Private-Only Members Area. This includes fully organized databases, resources and data
centers you can personally use to conduct your own investigations from the privacy of your own home just
like the detectives do!
Common Limited Liability Company (LLC) Questions
Getting Started
How long does it take to get a LLC entity set up in Florida?
How do I begin the process of incorporating my business?
How do I go about naming the LLC?
What Else Do I Need And Why?
What is a business license or occupational license and where do I get one?
What is a fictitious name or DBA (Doing Business As) and why would I need one?
What is a Registered Agent and is one needed?
What is an EIN and why do I need one?
What are certificates of ownership and why would I need them for my LLC?
What is a Certificate of Status and why would I need one?
How do I get a resale certificate or a Florida Tax ID number from the Florida Department of Revenue?
LLC Structure Questions
What is a Limited Liability Company (LLC)?
What are some of the benefits/advantages and disadvantages of forming an LLC?
What is the difference between a Member Manager and an External Manager?
Where can I find definitions for commonly associated LLC terms?
Things To Know About LLC's
What is an Operating Agreement?
What are articles of organization?
How is an LLC classified for Federal tax purposes?
How is an LLC classified for Florida state tax purposes?
Do I need an attorney or CPA to form an LLC?
What are the business activities I can choose for my LLC?
What are the different types of employees?
What is the difference between a principal address and a mailing address for an LLC?
Can I change the principal and mailing address of my corporation after I have filed?
--------------------------------------------------------------------------------
How long does it take to get an LLC entity set up in Florida?
Depending how quickly the state processes the filings, it will take between two and five business days to set up your LLC entity.
Back to top
How do I begin the process of incorporating my business?
Articles of Organization must be filed with the State of Florida, together with the required fees.
Back to top
How do I go about naming the LLC?
The name of your LLC must comply with requirements of the Florida Department of State. Florida Incorporation Service will
perform a preliminary name check for you at no additional charge.
The name of your LLC must comply with requirements of the Florida Department of State. We will perform a preliminary name
check for you at no additional charge as you form your company to help make sure you meet the following requirements.
As a minimum, keep these points in mind as you select a company name:
The name cannot be the same as another corporation or LLC on file with the State of Florida.
The name should not be confusingly similar to that of an existing corporation or LLC, i.e., the name should be distinguishable.
Adding "The", "and". "&", or any punctuation or pluralization,
will not make it unique according to the state. Adding "of Florida" or a
name of a city is also rejected by the State.
Using works like Services, Group, Management, Enterprise,
Associates, International, Property, Properties, Holdings, Marketing,
Investments and the like are well used put you at risk for reject.
May not contain language implying that the Florida Corporation
is connected with a government agency or that the corporation is
chartered under United States law.
You can look up your company name to see if it is available at
the Florida Department of State website.
For an LLC, please select a designator for the last part of the name (use either "LLC" or "Limited Liability Company") to identify
your company as an LLC.
The name you select may not contain language implying that your company is connected with a government agency or that it is
chartered under United States law.
Important Liability Issue for LLCs:
You should make a point of using the correct name of your company, including the "LLC" or "Limited Liability Company"
designation at the end of the name, as you conduct your business. Once you form your LLC, keep in mind that omission of the
designation in the use of the name shall render any person who knowingly participates in the omission, or knowingly acquiesces in
the omission, liable for any indebtedness, damage, or liability caused by the omission (Florida Statutes, Chapter 608.406).
You can look up your company name to see if it is available at the Florida Department of State website.
Back to top
What is a business license or occupational license and where do I get one?
A business or occupational license is issued yearly by the county government. Most but not all counties in Florida require that you
register your new business with them.
The costs depends on the county, the type of business and your company's impact on the county itself.
Please contact your local county once you have all your corporation documents to find out where you will need to go to get this
license.
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What is a fictitious name or DBA (Doing Business As) and why would I need one?
A fictitious name or DBA (Doing Business As) or Trade Name is a name you can register with the Florida Department of State so
that you may transact business as another name besides your company name.
You do not need to file for a fictitious name if you will be conducting business with your company name. You will only need to
file for a fictitious name if you will be conducting business as a DIFFERENT name then your LLC name
For example, you can have a company name ABC, LLC then register a fictitious name Ray's Pizza and then do business as Ray's
Pizza in advertising, letterhead, internet names and the like. So the company name remains the same and you will be able to
transact business with this fictitious name.
There are no holds on a fictitious name as it is a "nickname" or trade name of the company. So other companies can have the
same fictitious name.
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What is a Registered Agent and is one needed?
Florida requires that an individual, or service company, be responsible for receiving important legal and tax documents.
This service is provided by an "agent" of the LLC who is "registered" within Florida, thus the term "Registered Agent."
The registered agent for the LLC must have a valid street address within Florida and be available during normal business hours to
receive documents. The services performed by a registered agent may include:
Receiving and forwarding legal documents;
Receiving and forwarding franchise tax and annual report forms; and,
Accepting and forwarding service of process.
A Registered Agent must be an adult, residing within Florida and provide a physical address, (no P.O. boxes).
Florida Incorporation Service offers the Registered Agent Service as an additional item, à la carte, if you would like someone
other than yourself to be your Registered Agent.
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What is an EIN and why do I need one?
An Employer Identification Number (EIN), also known as a federal tax identification number, is a nine-digit number that the IRS
assigns to business entities.
This number is used to identify a business entity and to identify taxpayers that are required to file various business tax returns.
A business will need to apply for a new EIN if the business is sold or is otherwise transferred.
You will need an EIN if you have employees in your new business.
Banks may require an EIN to open an account for most LLC.
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What are certificates of ownership and why would I need them for my LLC?
A Certificate of ownership is a printed document used to indicate the percentage ownership in the LLC.
Please note: If you are applying for Workman's Compensation Exemption, you will need to supply a certificate of ownership to
them with your application of exemption.
Florida Incorporation Service offers these in our a la carte as an additional item. There are 10 custom-printed certificates which
may be issued at the discretion of the LLC members.
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What is a certificate of status and why would I need one?
A Certificate of Status is issued by the Florida Department of State to show that your company is active and has paid the initial
filing fees or annual report after the first year.
Some banks and governmental agencies require this certificate as verification that the company is an active Florida company.
If you choose this certificate as part of your package, it is issued electronically by the Florida Department of State and will be
emailed to you with your articles.
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How do I get a resale certificate or a Florida Tax ID number from the Florida Department of Revenue?
Please visit the Florida Department of Revenue website or call them at 1-800-352-3671.
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What is a Limited Liability Company (LLC)?
In the early 1980s Florida became the second state to authorize the formation of limited liability companies ("LLCs"). Now more
than 100,000 LLCs are formed in Florida annually.
One or more persons may form an LLC. A single-member LLC is allowed in Florida.
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What are some of the benefits/advantages and disadvantages of forming an LLC?
The primary reason for forming a limited liability company is to limit the liability of the owners.
Interests in LLCs, in addition, are protected from the claims of creditors of their members.
Organizational changes related to the LLC can generally be made in the operating agreement alone (without amending the
articles of organization).
Managers and managing members are also protected from personal liability regarding claims pertaining to the exercise of their
management authority except for more egregious conduct (criminal or reckless acts, deriving improper personal benefits, voting
for unlawful distributions, etc.).
Changes to Florida's corporate income tax laws in the 1990s effectively eliminated the corporate tax for LLCs.
Generally, an LLC with multiple members is treated for Florida income tax purposes as a partnership (nontaxable entities that act
as conduits for transferring income and loss directly to the individual partners) and a single-member LLC is "disregarded" as a
separate entity for tax purpose, the same way it is disregarded for federal tax purposes. Thus, most LLCs are not subject to Florida's
corporate income tax.
LLCs are similar to S corporations for federal tax purposes and do not pay tax themselves, but pass their income through to their
shareholders.
Selected benefits over a corporation:
Flexibility: One of the benefits of an LLC over a corporation is the great latitude provided in the drafting of the operating
agreement and the flexibility that is possible on such issues as members' contribution obligations, member and management
voting powers, profit and loss allocations, governance structure, members' distribution rights, etc. Amendments may be made to
the operating agreement as needed.
A corporation requires that specific formalities be completed on a regular basis, including annual meetings of shareholders and
directors each year, meeting minutes which are kept with the corporation's records, etc. It is a good business practice to document
major decisions regardless of the structure of your business; however these formalities are not required for LLCs.
The interest a member owns in an LLC can be protected from creditors while the stock a person has in a corporation may be
seized and sold by creditors.
LLCs can make special allocations of profits and losses among members; S corporations cannot. S corporations have one class of
ownership with profits and losses allocated according to the percentage of ownership.
LLC Disadvantages
The main disadvantage of the LLC as compared with an S corporation has to do with the tax treatment for profits that are taken
out of the business. If yours is a smaller company, you may want to consider the LLC carefully as the disadvantage primarily
affects smaller companies.
Here's the situation: With an S corporation, profits taken out of the business (other than salary) are not subject to social security
and Medicare taxes (which together amount to 15.3% in 2004)*.
Consider this: In larger companies, where company owners take out salaries of $85,000 or more, plus profits, this situation would
not have much of an impact; however, in smaller companies where the owners take out more modest salaries (and then take
profits out of the business when available), all the profit taken out of the LLC would be subject to social security and Medicare
taxes, where in the S corporation it would not. The result: For a small business where the owner paid themselves a $35,000 salary
and took and additional $40,000 in profit out of the business, the extra taxes on the $40,000 would be over $6,000.
* The maximum amount subject to the social security portion for tax years beginning in 2004 has increased to $87,900. All net
earnings of at least $400 are subject to the Medicare portion.
Additional LLC Information
A limited liability company may be organized for any lawful purpose, and remains subject to statutes and regulations of the laws
of the State of Florida for regulating and controlling its business.
Unless its articles of organization or operating agreement provide otherwise, each limited liability company organized and
existing under Florida law shall have the same powers as an individual to do all things necessary to carry out its business and
affairs, including, without limitation, the power to:
Sue and be sued, and defend, in its name.
Purchase, receive, lease, or otherwise acquire, own, hold, improve, use, and otherwise deal with real or personal property, or any
legal or equitable interest in property, wherever located.
Sell, convey, mortgage, grant a security interest in, lease, exchange, and otherwise encumber or dispose of all or any part of its
property.
Purchase, receive, subscribe for, or otherwise acquire, own, hold, vote, use, sell, mortgage, lend, grant a security interest in, or
otherwise dispose of and deal in and with, shares or other interests in or obligations of any other entity.
Make contracts or guarantees, or incur liabilities; borrow money; issue its notes, bonds, or other obligations, which may be
convertible into or include the option to purchase other securities of the limited liability company; or make contracts of guaranty
and suretyship which are necessary or convenient to the conduct, promotion, or attainment of the business of a corporation the
majority of the outstanding stock of which is owned, directly or indirectly, by the contracting limited liability company; a
corporation which owns, directly or indirectly, a majority of the outstanding membership interests of the contracting limited
liability company; or a corporation the majority of the outstanding stock of which is owned, directly or indirectly, by a corporation
which owns, directly or indirectly, the majority of the outstanding membership interests of the contracting limited liability
company, which contracts of guaranty and suretyship shall be deemed to be necessary or convenient to the conduct, promotion,
or attainment of the business of the contracting limited liability company; or make other contracts of guaranty and suretyship
which are necessary or convenient to the conduct, promotion, or attainment of the business of the contracting limited liability
company.
Lend money, invest or reinvest its funds, and receive and hold real or personal property as security for repayment.
Conduct its business, locate offices, and exercise the powers granted by this chapter within or without this state.
Select managers or managing members and appoint officers, directors, employees, and agents of the limited liability company,
define their duties, fix their compensation, and lend them money and credit.
Make donations for the public welfare or for charitable, scientific, or educational purposes.
Pay pensions and establish pension plans, pension trusts, profit-sharing plans, bonus plans, option plans, and benefit or incentive
plans for any or all of its current or former managers, members, officers, agents, and employees.
Be a promoter, incorporator, shareholder, partner, member, associate, or manager of any corporation, partnership, joint venture,
trust, or other entity.
Make payments or donations or do any other act not inconsistent with law that furthers the business of the limited liability
company.
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What is the difference between a Member Manager and an External Manager?
An LLC can be run by Members or External Managers.
What is a member?
A member is an owner of the company. An LLC can be run by a member (owner) or several members (owners) of the company.
Thus, where a member or several members run the company, the people who own the company also run the company. Most
Limited Liability Companies are member managed in this way.
What does it mean to have external managers?
If not managed by its members, you will choose to hire an outside person to run the company who does NOT own a part of the
company. This would be termed an "External Manager." You may have one external manager or several external managers.
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Additional Definitions
Authorized Representative - One or more persons acting to form a limited liability company by executing and filing the articles of
organization , as authorized by a member of such limited liability company. The authorized representative may, but is not
required to be, a member of the limited liability company that is being formed. Capital Account - The agreed value of the initial
contributions, increased by the agreed value of subsequent contributions to capital, if any, and reduced by distributions of capital,
unless otherwise provided in the articles of organization or the operating agreement.
Contribution - Any cash, property, or services rendered or a promissory note or other obligation to contribute cash or property or to
perform services, which a person contributes to the limited liability company as a member.
Distribution - A direct or indirect transfer of money or other property or incurrence of indebtedness by a limited liability company
to or for the benefit of its members in respect of their economic interests.
Foreign limited Liability Company - A limited liability company formed under the laws of any state other than Florida or under the
laws of any foreign country or other foreign jurisdiction.
Majority-in-interest of the members means, unless otherwise provided in the articles of organization or operating agreement,
members owning more than 50 percent of the then-current percentage or other interest in the profits of the limited liability
company.
Manager - A person who is appointed or elected to manage a manager-managed company and, unless otherwise provided in the
articles of organization or operating agreement, a manager may be, but need not be, a member of the limited liability company.
Manager-managed company means a limited liability company that is designated to be managed by one or more managers.
Managing member means a member appointed or elected as a managing member of a member-managed company.
Management agreement - If the LLC will be managed by a subset of its members or by someone who is not a member, there
should be a management agreement in place which spells out the rights and duties of both the members and managers.
Member - Any person who has been admitted to a limited liability company as a member and has an economic interest in a
limited liability company which may, but need not, be represented by a capital account or, in the case of a foreign limited
liability company, has been admitted to a limited liability company as a member in accordance with the laws of the state or
foreign country or other foreign jurisdiction under which the foreign limited liability company is organized. The member need not
reside in Florida. See also Management of a Limited Liability Company.
Membership interest, member's interest, or interest means a member's share of the profits and the losses of the limited liability
company, the right to receive distributions of the limited liability company's assets, voting rights, management rights, or any other
rights under this chapter or the articles of organization or operating agreement.
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What is an Operating Agreement and why would I need one for my LLC?
An operating agreement can contain a writing setting out:
The amount of cash and a description and statement of the agreed value of any other property or services contributed by each
member and which each member has agreed to contribute.
The times at which or events on the happening of which any additional contributions agreed to be made by each member are to
be made.
Any events upon the happening of which the limited liability company is to be dissolved and its affairs wound up.
It may also contain:
Members and managers name and responsibilities as well as ownership percentages and signatures.
Profits, losses, distribution of monies, management, banking resolutions, taxes and other legal agreements regarding internal
conflicts as well as general provisions.
We offer as part of our a la carte service a SAMPLE Operating Agreement. For complete requirements, please obtain a copy of
your state's Limited Liability Company legislation. There you will be able to determine the guidelines for your Operating
Agreement.
Additional information regarding Limited Liability Company requirements can be located in Florida Statutes, Chapter 608:
Limited Liability Companies.
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What are Articles of Organization?
(1) In order to form a limited liability company, articles of organization of a limited liability company must be executed and filed
with the Department of State by one or more members or authorized representatives of the limited liability company. The articles
of organization shall set forth the following and additional information as required:
(a) The name of the limited liability company.
(b) The mailing address and the street address of the principal office of the limited liability company.
(c) The name and street address of its initial registered agent for service of process in the state.
(2) The articles of organization are executed by at least one member or the authorized representative of a member.
Note: Articles of organization are filed quickly and efficiently using our online system. Since filings are completed with the
Division of Corporations electronically, this cuts the processing time required to form your LLC.
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How is an LLC classified for Federal tax purposes?
For Federal tax purposes, an LLC business entity must file as either a corporation, partnership or sole proprietorship.
Federal tax laws will automatically classify and tax certain LLC business entities as corporations. These entities are:
A business entity formed under a Federal or State statute or under a statute of a federally recognized Indian tribe if the statute
describes or refers to the entity as incorporated or as a corporation, body corporate, or body politic.
An Association under Regulations section 301.7701-3.
A business entity formed under a Federal or State statute if the statute describes or refers to the entity as a joint stock association.
A state chartered business entity conducting banking activities if any of its deposits are insured by the FDIC.
A business entity wholly owned by a state of political subdivision thereof, or a business entity wholly owned by a foreign
government or other entity described in Regulations section 1.892.2-T.
A business entity taxable as a corporation under a provision of the code other than section 7701.(a)(3).
Certain foreign entities (see Form 8832 instructions).
An Insurance Company.
If your LLC is not in one of the above categories:
An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business entity classification. A
business with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership , and a
business entity with a single member can choose to be classified as either an association taxable as a corporation or disregarded
as an entity separate from its owner, a “disregarded entity”. The Form 8832 is also filed to change the LLC’s classification.
What is the effect of Not Electing and Entity Classification, the Default Rules?
If an LLC does not File Form 8832, it will be classified, for Federal tax purposes under the default rules. The default rules provide
that if the LLC has at least two members and is not required to be classified as a corporation, it will automatically default as a
partnership, and be required to file a partnership return. An LLC that has only a single member and is not required to be classified
as a corporation will automatically default to the classification of disregarded entity. The disregarded entity files as a sole
proprietorship and completes the appropriate schedules as part of the single owners Form 1040.
Note: The above is a summary of tax information from the IRS website and does not present complete information. Please consult
an appropriate tax professional if you need clarification or contact the IRS directly for more detail.
Here is the web link to the IRS website for more information on different tax situations.
http://www.irs.gov/businesses/small/article/0,,id=98359,00.html
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How is an LLC classified for Florida state tax purposes?
A limited liability company that is classified as a corporation for Florida and federal tax purposes is subject to the Florida Income
Tax Code and must file a Florida corporate income tax return.
A limited liability company that is classified as a partnership for Florida and federal tax purposes is required to file Form F-1065 if
one or more of its owners is a corporation. In addition, the corporate owner of a limited liability company that is classified as a
partnership for Florida and federal tax purposes must file a Florida corporate income tax return.
A single member limited liability company that is disregarded for Florida and federal tax purposes is not required to file a separate
Florida corporate income tax return. However, the income of the company is not exempt from tax if it is owned by a corporation,
whether directly or indirectly. In this case, the corporation is required to file Form F-1120 reporting its own income, together with
the income of the single member limited liability company.
Source: Fl Dept Revenue
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Do I need an attorney or CPA to form an LLC?
No. An attorney or CPA is not legally required to form an LLC.
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What are the business activities I can choose for my LLC?
These are broad categories that the IRS provides to help you select what type of company you are creating. If your company does
not fall into any of these categories choose “other” then tell us specifically what you will be doing in the blank next to “other.”
Accommodation & food services - providing customers with lodging, meal preparation, snacks, or beverages for immediate
consumption.
Construction - erecting buildings or other structures, (e.g., streets, highways, bridges, tunnels). The term “construction” also
includes special trade contractors (e.g., plumbing, HVAC, electrical, carpentry, concrete, excavation, etc.)
Finance & insurance - in transactions involving the creation, liquidation, or change of ownership of financial assets and/or
facilitating such financial transactions; underwriting annuities/insurance policies; facilitating such underwriting by selling
insurance policies; or by providing other insurance or employee-benefit related services.
Health care and social assistance - providing physical, medical, or psychiatric care using licensed health care professionals or
providing social assistance activities such as youth centers, adoption agencies, individual/family services, temporary shelters, etc.
Manufacturing - the mechanical, physical, or chemical transformation of materials, substances, or components into new products.
The assembling of component parts of manufactured products is also considered to be manufacturing.
Real estate - renting or leasing real estate to others; managing, selling, buying or renting real estate for others; or providing related
real estate services (e.g., appraisal services).
Rental and leasing - providing tangible goods such as autos, computers, consumer goods, or industrial machinery and equipment
to customers in return for a periodic rental or lease payment.
Retail - selling merchandise to the general public from a fixed store; by direct, mail-order, or electronic sales; or by using vending
machines.
Transportation & warehousing - transportation of passengers or cargo; warehousing or storage of goods; scenic or sight-seeing
transportation; or support activities related to these modes of transportation.
Wholesale-agent/broker - arranging for the purchase or sale of goods owned by others or purchasing goods on a commission basis
for goods traded in the wholesale market, usually between businesses.
Wholesale-other - selling goods in the wholesale market generally to other businesses for resale on their own account.
Other - activity not described above. Describe the applicant's principal business activity in the space provided.
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What are the different types of employees?
Other
Applies to most employees. Most new companies will designate their employees in the "Other" category.
Household employees
Employee who performs household services, such as a maid, babysitter, gardener, or cook, in your home are not subject to social
security and Medicare taxes if you pay that employee cash wages of less than $1,400.
Agricultural Employees
In general, you are an employer of farm workers if your employees:
Raise or harvest agricultural or horticultural products on your farm,
Work in connection with the operation, management, conservation, improvement, or maintenance of your farm and its tools and
equipment,
Handle, process, or package any agricultural or horticultural commodity if you produced over half of the commodity (for a group
of up to 20 unincorporated operators, all of the commodity),
Or do work for you related to cotton ginning, turpentine, or gum resin products.
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What is the difference between a principal address and a mailing address for an LLC?
The principal address is the physical location in Florida where the company conducts business. Florida Department of State
Division of Corporations mandates that this be a physical Florida address. A P.O. Box number cannot be used for this address.
The Mailing address for an LLC can be a P.O. Box and does not have to be in Florida. What the Florida Department of State does
require of this address is that this be a current and good address where you can be reached at any time.
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Can I change the principal and mailing address of my corporation after I have filed?
Yes, you can update both of these addresses by emailing the Florida Department of State – Division of Corporations at
corpaddresschange@dos.state.fl.us.
The principal address will still have to be a physical Florida address.
You can also update the officer and director after your initial filing
Getting Started
How long does it take to get a LLC entity set up in Florida?
How do I begin the process of incorporating my business?
How do I go about naming the LLC?
What Else Do I Need And Why?
What is a business license or occupational license and where do I get one?
What is a fictitious name or DBA (Doing Business As) and why would I need one?
What is a Registered Agent and is one needed?
What is an EIN and why do I need one?
What are certificates of ownership and why would I need them for my LLC?
What is a Certificate of Status and why would I need one?
How do I get a resale certificate or a Florida Tax ID number from the Florida Department of Revenue?
LLC Structure Questions
What is a Limited Liability Company (LLC)?
What are some of the benefits/advantages and disadvantages of forming an LLC?
What is the difference between a Member Manager and an External Manager?
Where can I find definitions for commonly associated LLC terms?
Things To Know About LLC's
What is an Operating Agreement?
What are articles of organization?
How is an LLC classified for Federal tax purposes?
How is an LLC classified for Florida state tax purposes?
Do I need an attorney or CPA to form an LLC?
What are the business activities I can choose for my LLC?
What are the different types of employees?
What is the difference between a principal address and a mailing address for an LLC?
Can I change the principal and mailing address of my corporation after I have filed?
--------------------------------------------------------------------------------
How long does it take to get an LLC entity set up in Florida?
Depending how quickly the state processes the filings, it will take between two and five business days to set up your LLC entity.
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How do I begin the process of incorporating my business?
Articles of Organization must be filed with the State of Florida, together with the required fees.
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How do I go about naming the LLC?
The name of your LLC must comply with requirements of the Florida Department of State. Florida Incorporation Service will
perform a preliminary name check for you at no additional charge.
The name of your LLC must comply with requirements of the Florida Department of State. We will perform a preliminary name
check for you at no additional charge as you form your company to help make sure you meet the following requirements.
As a minimum, keep these points in mind as you select a company name:
The name cannot be the same as another corporation or LLC on file with the State of Florida.
The name should not be confusingly similar to that of an existing corporation or LLC, i.e., the name should be distinguishable.
Adding "The", "and". "&", or any punctuation or pluralization,
will not make it unique according to the state. Adding "of Florida" or a
name of a city is also rejected by the State.
Using works like Services, Group, Management, Enterprise,
Associates, International, Property, Properties, Holdings, Marketing,
Investments and the like are well used put you at risk for reject.
May not contain language implying that the Florida Corporation
is connected with a government agency or that the corporation is
chartered under United States law.
You can look up your company name to see if it is available at
the Florida Department of State website.
For an LLC, please select a designator for the last part of the name (use either "LLC" or "Limited Liability Company") to identify
your company as an LLC.
The name you select may not contain language implying that your company is connected with a government agency or that it is
chartered under United States law.
Important Liability Issue for LLCs:
You should make a point of using the correct name of your company, including the "LLC" or "Limited Liability Company"
designation at the end of the name, as you conduct your business. Once you form your LLC, keep in mind that omission of the
designation in the use of the name shall render any person who knowingly participates in the omission, or knowingly acquiesces in
the omission, liable for any indebtedness, damage, or liability caused by the omission (Florida Statutes, Chapter 608.406).
You can look up your company name to see if it is available at the Florida Department of State website.
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What is a business license or occupational license and where do I get one?
A business or occupational license is issued yearly by the county government. Most but not all counties in Florida require that you
register your new business with them.
The costs depends on the county, the type of business and your company's impact on the county itself.
Please contact your local county once you have all your corporation documents to find out where you will need to go to get this
license.
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What is a fictitious name or DBA (Doing Business As) and why would I need one?
A fictitious name or DBA (Doing Business As) or Trade Name is a name you can register with the Florida Department of State so
that you may transact business as another name besides your company name.
You do not need to file for a fictitious name if you will be conducting business with your company name. You will only need to
file for a fictitious name if you will be conducting business as a DIFFERENT name then your LLC name
For example, you can have a company name ABC, LLC then register a fictitious name Ray's Pizza and then do business as Ray's
Pizza in advertising, letterhead, internet names and the like. So the company name remains the same and you will be able to
transact business with this fictitious name.
There are no holds on a fictitious name as it is a "nickname" or trade name of the company. So other companies can have the
same fictitious name.
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What is a Registered Agent and is one needed?
Florida requires that an individual, or service company, be responsible for receiving important legal and tax documents.
This service is provided by an "agent" of the LLC who is "registered" within Florida, thus the term "Registered Agent."
The registered agent for the LLC must have a valid street address within Florida and be available during normal business hours to
receive documents. The services performed by a registered agent may include:
Receiving and forwarding legal documents;
Receiving and forwarding franchise tax and annual report forms; and,
Accepting and forwarding service of process.
A Registered Agent must be an adult, residing within Florida and provide a physical address, (no P.O. boxes).
Florida Incorporation Service offers the Registered Agent Service as an additional item, à la carte, if you would like someone
other than yourself to be your Registered Agent.
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What is an EIN and why do I need one?
An Employer Identification Number (EIN), also known as a federal tax identification number, is a nine-digit number that the IRS
assigns to business entities.
This number is used to identify a business entity and to identify taxpayers that are required to file various business tax returns.
A business will need to apply for a new EIN if the business is sold or is otherwise transferred.
You will need an EIN if you have employees in your new business.
Banks may require an EIN to open an account for most LLC.
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What are certificates of ownership and why would I need them for my LLC?
A Certificate of ownership is a printed document used to indicate the percentage ownership in the LLC.
Please note: If you are applying for Workman's Compensation Exemption, you will need to supply a certificate of ownership to
them with your application of exemption.
Florida Incorporation Service offers these in our a la carte as an additional item. There are 10 custom-printed certificates which
may be issued at the discretion of the LLC members.
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What is a certificate of status and why would I need one?
A Certificate of Status is issued by the Florida Department of State to show that your company is active and has paid the initial
filing fees or annual report after the first year.
Some banks and governmental agencies require this certificate as verification that the company is an active Florida company.
If you choose this certificate as part of your package, it is issued electronically by the Florida Department of State and will be
emailed to you with your articles.
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How do I get a resale certificate or a Florida Tax ID number from the Florida Department of Revenue?
Please visit the Florida Department of Revenue website or call them at 1-800-352-3671.
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What is a Limited Liability Company (LLC)?
In the early 1980s Florida became the second state to authorize the formation of limited liability companies ("LLCs"). Now more
than 100,000 LLCs are formed in Florida annually.
One or more persons may form an LLC. A single-member LLC is allowed in Florida.
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What are some of the benefits/advantages and disadvantages of forming an LLC?
The primary reason for forming a limited liability company is to limit the liability of the owners.
Interests in LLCs, in addition, are protected from the claims of creditors of their members.
Organizational changes related to the LLC can generally be made in the operating agreement alone (without amending the
articles of organization).
Managers and managing members are also protected from personal liability regarding claims pertaining to the exercise of their
management authority except for more egregious conduct (criminal or reckless acts, deriving improper personal benefits, voting
for unlawful distributions, etc.).
Changes to Florida's corporate income tax laws in the 1990s effectively eliminated the corporate tax for LLCs.
Generally, an LLC with multiple members is treated for Florida income tax purposes as a partnership (nontaxable entities that act
as conduits for transferring income and loss directly to the individual partners) and a single-member LLC is "disregarded" as a
separate entity for tax purpose, the same way it is disregarded for federal tax purposes. Thus, most LLCs are not subject to Florida's
corporate income tax.
LLCs are similar to S corporations for federal tax purposes and do not pay tax themselves, but pass their income through to their
shareholders.
Selected benefits over a corporation:
Flexibility: One of the benefits of an LLC over a corporation is the great latitude provided in the drafting of the operating
agreement and the flexibility that is possible on such issues as members' contribution obligations, member and management
voting powers, profit and loss allocations, governance structure, members' distribution rights, etc. Amendments may be made to
the operating agreement as needed.
A corporation requires that specific formalities be completed on a regular basis, including annual meetings of shareholders and
directors each year, meeting minutes which are kept with the corporation's records, etc. It is a good business practice to document
major decisions regardless of the structure of your business; however these formalities are not required for LLCs.
The interest a member owns in an LLC can be protected from creditors while the stock a person has in a corporation may be
seized and sold by creditors.
LLCs can make special allocations of profits and losses among members; S corporations cannot. S corporations have one class of
ownership with profits and losses allocated according to the percentage of ownership.
LLC Disadvantages
The main disadvantage of the LLC as compared with an S corporation has to do with the tax treatment for profits that are taken
out of the business. If yours is a smaller company, you may want to consider the LLC carefully as the disadvantage primarily
affects smaller companies.
Here's the situation: With an S corporation, profits taken out of the business (other than salary) are not subject to social security
and Medicare taxes (which together amount to 15.3% in 2004)*.
Consider this: In larger companies, where company owners take out salaries of $85,000 or more, plus profits, this situation would
not have much of an impact; however, in smaller companies where the owners take out more modest salaries (and then take
profits out of the business when available), all the profit taken out of the LLC would be subject to social security and Medicare
taxes, where in the S corporation it would not. The result: For a small business where the owner paid themselves a $35,000 salary
and took and additional $40,000 in profit out of the business, the extra taxes on the $40,000 would be over $6,000.
* The maximum amount subject to the social security portion for tax years beginning in 2004 has increased to $87,900. All net
earnings of at least $400 are subject to the Medicare portion.
Additional LLC Information
A limited liability company may be organized for any lawful purpose, and remains subject to statutes and regulations of the laws
of the State of Florida for regulating and controlling its business.
Unless its articles of organization or operating agreement provide otherwise, each limited liability company organized and
existing under Florida law shall have the same powers as an individual to do all things necessary to carry out its business and
affairs, including, without limitation, the power to:
Sue and be sued, and defend, in its name.
Purchase, receive, lease, or otherwise acquire, own, hold, improve, use, and otherwise deal with real or personal property, or any
legal or equitable interest in property, wherever located.
Sell, convey, mortgage, grant a security interest in, lease, exchange, and otherwise encumber or dispose of all or any part of its
property.
Purchase, receive, subscribe for, or otherwise acquire, own, hold, vote, use, sell, mortgage, lend, grant a security interest in, or
otherwise dispose of and deal in and with, shares or other interests in or obligations of any other entity.
Make contracts or guarantees, or incur liabilities; borrow money; issue its notes, bonds, or other obligations, which may be
convertible into or include the option to purchase other securities of the limited liability company; or make contracts of guaranty
and suretyship which are necessary or convenient to the conduct, promotion, or attainment of the business of a corporation the
majority of the outstanding stock of which is owned, directly or indirectly, by the contracting limited liability company; a
corporation which owns, directly or indirectly, a majority of the outstanding membership interests of the contracting limited
liability company; or a corporation the majority of the outstanding stock of which is owned, directly or indirectly, by a corporation
which owns, directly or indirectly, the majority of the outstanding membership interests of the contracting limited liability
company, which contracts of guaranty and suretyship shall be deemed to be necessary or convenient to the conduct, promotion,
or attainment of the business of the contracting limited liability company; or make other contracts of guaranty and suretyship
which are necessary or convenient to the conduct, promotion, or attainment of the business of the contracting limited liability
company.
Lend money, invest or reinvest its funds, and receive and hold real or personal property as security for repayment.
Conduct its business, locate offices, and exercise the powers granted by this chapter within or without this state.
Select managers or managing members and appoint officers, directors, employees, and agents of the limited liability company,
define their duties, fix their compensation, and lend them money and credit.
Make donations for the public welfare or for charitable, scientific, or educational purposes.
Pay pensions and establish pension plans, pension trusts, profit-sharing plans, bonus plans, option plans, and benefit or incentive
plans for any or all of its current or former managers, members, officers, agents, and employees.
Be a promoter, incorporator, shareholder, partner, member, associate, or manager of any corporation, partnership, joint venture,
trust, or other entity.
Make payments or donations or do any other act not inconsistent with law that furthers the business of the limited liability
company.
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What is the difference between a Member Manager and an External Manager?
An LLC can be run by Members or External Managers.
What is a member?
A member is an owner of the company. An LLC can be run by a member (owner) or several members (owners) of the company.
Thus, where a member or several members run the company, the people who own the company also run the company. Most
Limited Liability Companies are member managed in this way.
What does it mean to have external managers?
If not managed by its members, you will choose to hire an outside person to run the company who does NOT own a part of the
company. This would be termed an "External Manager." You may have one external manager or several external managers.
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Additional Definitions
Authorized Representative - One or more persons acting to form a limited liability company by executing and filing the articles of
organization , as authorized by a member of such limited liability company. The authorized representative may, but is not
required to be, a member of the limited liability company that is being formed. Capital Account - The agreed value of the initial
contributions, increased by the agreed value of subsequent contributions to capital, if any, and reduced by distributions of capital,
unless otherwise provided in the articles of organization or the operating agreement.
Contribution - Any cash, property, or services rendered or a promissory note or other obligation to contribute cash or property or to
perform services, which a person contributes to the limited liability company as a member.
Distribution - A direct or indirect transfer of money or other property or incurrence of indebtedness by a limited liability company
to or for the benefit of its members in respect of their economic interests.
Foreign limited Liability Company - A limited liability company formed under the laws of any state other than Florida or under the
laws of any foreign country or other foreign jurisdiction.
Majority-in-interest of the members means, unless otherwise provided in the articles of organization or operating agreement,
members owning more than 50 percent of the then-current percentage or other interest in the profits of the limited liability
company.
Manager - A person who is appointed or elected to manage a manager-managed company and, unless otherwise provided in the
articles of organization or operating agreement, a manager may be, but need not be, a member of the limited liability company.
Manager-managed company means a limited liability company that is designated to be managed by one or more managers.
Managing member means a member appointed or elected as a managing member of a member-managed company.
Management agreement - If the LLC will be managed by a subset of its members or by someone who is not a member, there
should be a management agreement in place which spells out the rights and duties of both the members and managers.
Member - Any person who has been admitted to a limited liability company as a member and has an economic interest in a
limited liability company which may, but need not, be represented by a capital account or, in the case of a foreign limited
liability company, has been admitted to a limited liability company as a member in accordance with the laws of the state or
foreign country or other foreign jurisdiction under which the foreign limited liability company is organized. The member need not
reside in Florida. See also Management of a Limited Liability Company.
Membership interest, member's interest, or interest means a member's share of the profits and the losses of the limited liability
company, the right to receive distributions of the limited liability company's assets, voting rights, management rights, or any other
rights under this chapter or the articles of organization or operating agreement.
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What is an Operating Agreement and why would I need one for my LLC?
An operating agreement can contain a writing setting out:
The amount of cash and a description and statement of the agreed value of any other property or services contributed by each
member and which each member has agreed to contribute.
The times at which or events on the happening of which any additional contributions agreed to be made by each member are to
be made.
Any events upon the happening of which the limited liability company is to be dissolved and its affairs wound up.
It may also contain:
Members and managers name and responsibilities as well as ownership percentages and signatures.
Profits, losses, distribution of monies, management, banking resolutions, taxes and other legal agreements regarding internal
conflicts as well as general provisions.
We offer as part of our a la carte service a SAMPLE Operating Agreement. For complete requirements, please obtain a copy of
your state's Limited Liability Company legislation. There you will be able to determine the guidelines for your Operating
Agreement.
Additional information regarding Limited Liability Company requirements can be located in Florida Statutes, Chapter 608:
Limited Liability Companies.
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What are Articles of Organization?
(1) In order to form a limited liability company, articles of organization of a limited liability company must be executed and filed
with the Department of State by one or more members or authorized representatives of the limited liability company. The articles
of organization shall set forth the following and additional information as required:
(a) The name of the limited liability company.
(b) The mailing address and the street address of the principal office of the limited liability company.
(c) The name and street address of its initial registered agent for service of process in the state.
(2) The articles of organization are executed by at least one member or the authorized representative of a member.
Note: Articles of organization are filed quickly and efficiently using our online system. Since filings are completed with the
Division of Corporations electronically, this cuts the processing time required to form your LLC.
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How is an LLC classified for Federal tax purposes?
For Federal tax purposes, an LLC business entity must file as either a corporation, partnership or sole proprietorship.
Federal tax laws will automatically classify and tax certain LLC business entities as corporations. These entities are:
A business entity formed under a Federal or State statute or under a statute of a federally recognized Indian tribe if the statute
describes or refers to the entity as incorporated or as a corporation, body corporate, or body politic.
An Association under Regulations section 301.7701-3.
A business entity formed under a Federal or State statute if the statute describes or refers to the entity as a joint stock association.
A state chartered business entity conducting banking activities if any of its deposits are insured by the FDIC.
A business entity wholly owned by a state of political subdivision thereof, or a business entity wholly owned by a foreign
government or other entity described in Regulations section 1.892.2-T.
A business entity taxable as a corporation under a provision of the code other than section 7701.(a)(3).
Certain foreign entities (see Form 8832 instructions).
An Insurance Company.
If your LLC is not in one of the above categories:
An LLC that is not automatically classified as a corporation can file Form 8832 to elect their business entity classification. A
business with at least 2 members can choose to be classified as an association taxable as a corporation or a partnership , and a
business entity with a single member can choose to be classified as either an association taxable as a corporation or disregarded
as an entity separate from its owner, a “disregarded entity”. The Form 8832 is also filed to change the LLC’s classification.
What is the effect of Not Electing and Entity Classification, the Default Rules?
If an LLC does not File Form 8832, it will be classified, for Federal tax purposes under the default rules. The default rules provide
that if the LLC has at least two members and is not required to be classified as a corporation, it will automatically default as a
partnership, and be required to file a partnership return. An LLC that has only a single member and is not required to be classified
as a corporation will automatically default to the classification of disregarded entity. The disregarded entity files as a sole
proprietorship and completes the appropriate schedules as part of the single owners Form 1040.
Note: The above is a summary of tax information from the IRS website and does not present complete information. Please consult
an appropriate tax professional if you need clarification or contact the IRS directly for more detail.
Here is the web link to the IRS website for more information on different tax situations.
http://www.irs.gov/businesses/small/article/0,,id=98359,00.html
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How is an LLC classified for Florida state tax purposes?
A limited liability company that is classified as a corporation for Florida and federal tax purposes is subject to the Florida Income
Tax Code and must file a Florida corporate income tax return.
A limited liability company that is classified as a partnership for Florida and federal tax purposes is required to file Form F-1065 if
one or more of its owners is a corporation. In addition, the corporate owner of a limited liability company that is classified as a
partnership for Florida and federal tax purposes must file a Florida corporate income tax return.
A single member limited liability company that is disregarded for Florida and federal tax purposes is not required to file a separate
Florida corporate income tax return. However, the income of the company is not exempt from tax if it is owned by a corporation,
whether directly or indirectly. In this case, the corporation is required to file Form F-1120 reporting its own income, together with
the income of the single member limited liability company.
Source: Fl Dept Revenue
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Do I need an attorney or CPA to form an LLC?
No. An attorney or CPA is not legally required to form an LLC.
Back to top
What are the business activities I can choose for my LLC?
These are broad categories that the IRS provides to help you select what type of company you are creating. If your company does
not fall into any of these categories choose “other” then tell us specifically what you will be doing in the blank next to “other.”
Accommodation & food services - providing customers with lodging, meal preparation, snacks, or beverages for immediate
consumption.
Construction - erecting buildings or other structures, (e.g., streets, highways, bridges, tunnels). The term “construction” also
includes special trade contractors (e.g., plumbing, HVAC, electrical, carpentry, concrete, excavation, etc.)
Finance & insurance - in transactions involving the creation, liquidation, or change of ownership of financial assets and/or
facilitating such financial transactions; underwriting annuities/insurance policies; facilitating such underwriting by selling
insurance policies; or by providing other insurance or employee-benefit related services.
Health care and social assistance - providing physical, medical, or psychiatric care using licensed health care professionals or
providing social assistance activities such as youth centers, adoption agencies, individual/family services, temporary shelters, etc.
Manufacturing - the mechanical, physical, or chemical transformation of materials, substances, or components into new products.
The assembling of component parts of manufactured products is also considered to be manufacturing.
Real estate - renting or leasing real estate to others; managing, selling, buying or renting real estate for others; or providing related
real estate services (e.g., appraisal services).
Rental and leasing - providing tangible goods such as autos, computers, consumer goods, or industrial machinery and equipment
to customers in return for a periodic rental or lease payment.
Retail - selling merchandise to the general public from a fixed store; by direct, mail-order, or electronic sales; or by using vending
machines.
Transportation & warehousing - transportation of passengers or cargo; warehousing or storage of goods; scenic or sight-seeing
transportation; or support activities related to these modes of transportation.
Wholesale-agent/broker - arranging for the purchase or sale of goods owned by others or purchasing goods on a commission basis
for goods traded in the wholesale market, usually between businesses.
Wholesale-other - selling goods in the wholesale market generally to other businesses for resale on their own account.
Other - activity not described above. Describe the applicant's principal business activity in the space provided.
Back to top
What are the different types of employees?
Other
Applies to most employees. Most new companies will designate their employees in the "Other" category.
Household employees
Employee who performs household services, such as a maid, babysitter, gardener, or cook, in your home are not subject to social
security and Medicare taxes if you pay that employee cash wages of less than $1,400.
Agricultural Employees
In general, you are an employer of farm workers if your employees:
Raise or harvest agricultural or horticultural products on your farm,
Work in connection with the operation, management, conservation, improvement, or maintenance of your farm and its tools and
equipment,
Handle, process, or package any agricultural or horticultural commodity if you produced over half of the commodity (for a group
of up to 20 unincorporated operators, all of the commodity),
Or do work for you related to cotton ginning, turpentine, or gum resin products.
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What is the difference between a principal address and a mailing address for an LLC?
The principal address is the physical location in Florida where the company conducts business. Florida Department of State
Division of Corporations mandates that this be a physical Florida address. A P.O. Box number cannot be used for this address.
The Mailing address for an LLC can be a P.O. Box and does not have to be in Florida. What the Florida Department of State does
require of this address is that this be a current and good address where you can be reached at any time.
Back to top
Can I change the principal and mailing address of my corporation after I have filed?
Yes, you can update both of these addresses by emailing the Florida Department of State – Division of Corporations at
corpaddresschange@dos.state.fl.us.
The principal address will still have to be a physical Florida address.
You can also update the officer and director after your initial filing
Home Insurance Center
RESOURCES AND INFORMATION TO HELP YOU PROTECT
YOUR HOME AND EVERYTHING IN IT
Insurance Tips For Homeowners
Homeowners' insurance isn't a luxury, it's a necessity. In fact,
most mortgage companies won't make a loan or finance a
residential real estate transaction unless the buyer provides
proof of coverage for the full or fair value of the property (most of
the time this is the purchase price). Read on to learn how you can
make sure your homeowners' insurance will meet your needs.
Guaranteed Replacement Value Insurance
All homeowners should buy "guaranteed replacement value"
homeowners' insurance. This means that your home will be
rebuilt in the event of a disaster, no matter what the cost.
Because the cost of building a new home tends to increase over
the years, guaranteed replacement value policies will absorb the
increased costs and provide the homeowner with a cushion.
Look For Multiple Policy Discounts
Many insurance companies give a discount of 10% or more to
customers that maintain other insurance contracts under the
same roof, such as auto or health insurance. Consider obtaining
a quote for other types of insurance from the same company that
provides your home insurance. You may end up saving on both
annual policy premiums.
Raise Your Deductible
Like health insurance or car insurance, the higher the deductible
the homeowner chooses, the lower the annual premiums will be.
The catch? Smaller claims such as broken windows or damaged
sheetrock from a leaky pipe, which typically will cost only a few
hundred dollars to fix, will most likely be absorbed by the
homeowner.
Install Additional Smoke Alarms
Smoke alarms are another way to reduce your homeowners'
insurance premiums. While these are standard in most new
houses, installing them in older homes can save the homeowner
10% or more in annual premiums. Some insurance companies
will also give further discounts if the you install additional smoke
detectors. In addition to premium discounts, in case of fire, they
could save your life!
Maintain A Security System
A burglar alarm that is monitored by a central station, or that is
tied directly to a local police station, can help lower a
homeowner's annual premiums by 5% or more. To obtain this
discount, the homeowner will typically be required to provide the
insurance company with proof of central monitoring.
2 of 12
RESOURCES AND INFORMATION TO HELP YOU PROTECT
YOUR HOME AND EVERYTHING IN IT
Insurance Tips For Homeowners
Homeowners' insurance isn't a luxury, it's a necessity. In fact,
most mortgage companies won't make a loan or finance a
residential real estate transaction unless the buyer provides
proof of coverage for the full or fair value of the property (most of
the time this is the purchase price). Read on to learn how you can
make sure your homeowners' insurance will meet your needs.
Guaranteed Replacement Value Insurance
All homeowners should buy "guaranteed replacement value"
homeowners' insurance. This means that your home will be
rebuilt in the event of a disaster, no matter what the cost.
Because the cost of building a new home tends to increase over
the years, guaranteed replacement value policies will absorb the
increased costs and provide the homeowner with a cushion.
Look For Multiple Policy Discounts
Many insurance companies give a discount of 10% or more to
customers that maintain other insurance contracts under the
same roof, such as auto or health insurance. Consider obtaining
a quote for other types of insurance from the same company that
provides your home insurance. You may end up saving on both
annual policy premiums.
Raise Your Deductible
Like health insurance or car insurance, the higher the deductible
the homeowner chooses, the lower the annual premiums will be.
The catch? Smaller claims such as broken windows or damaged
sheetrock from a leaky pipe, which typically will cost only a few
hundred dollars to fix, will most likely be absorbed by the
homeowner.
Install Additional Smoke Alarms
Smoke alarms are another way to reduce your homeowners'
insurance premiums. While these are standard in most new
houses, installing them in older homes can save the homeowner
10% or more in annual premiums. Some insurance companies
will also give further discounts if the you install additional smoke
detectors. In addition to premium discounts, in case of fire, they
could save your life!
Maintain A Security System
A burglar alarm that is monitored by a central station, or that is
tied directly to a local police station, can help lower a
homeowner's annual premiums by 5% or more. To obtain this
discount, the homeowner will typically be required to provide the
insurance company with proof of central monitoring.
2 of 12
Top Ten Tips For Success
Posted by ANTONY
Professional Investor
Realtor
Mortgage Broker
One of the requests I receive the most is for a list of the
top ten tips for success. Here’s a list that addresses
students as well as professionals:
Be focused. Put everything you’ve got into what you do
every day.
Believe in yourself. If you don’t, no one else will.
Be tenacious.
Trust your instincts.
Maintain your momentum and keep everyone moving
forward
See yourself as victorious and leading a winning team.
Be passionate about what you do.
Live on the edge. Do not become complacent.
Leadership is not a group effort. If you’re in charge, then
be in charge.
Never give up!
Wealth Creation:
Learn How the Millionaires Do It
Posted by ANTONY
Professional Investor
Realtor
Mortgage Broker
One of the requests I receive the most is for a list of the
top ten tips for success. Here’s a list that addresses
students as well as professionals:
Be focused. Put everything you’ve got into what you do
every day.
Believe in yourself. If you don’t, no one else will.
Be tenacious.
Trust your instincts.
Maintain your momentum and keep everyone moving
forward
See yourself as victorious and leading a winning team.
Be passionate about what you do.
Live on the edge. Do not become complacent.
Leadership is not a group effort. If you’re in charge, then
be in charge.
Never give up!
Wealth Creation:
Learn How the Millionaires Do It
Life Insurance with a certified,
licensed and experienced Agent.
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I Offer You My Clients; Integrity, Safety and Stability.
A commitment to Fairness and Honesty.
Exceptional Personal Service!
ANTONY JEANTY
Phone- 786-709-6577
Licensed Real Estate Agent
Licensed Mortgage Broker
Licensed Insurance Agent
MIAMI DADE, BROWARD, PALM BEACH, PORT
SAINT LUCIE, ORANGE COUNTY AREA. CALL THE
AGENT AT: 786-709-6577
licensed and experienced Agent.
CALL THE AGENT AT: 786-709-6577
It makes good sense to have us as
your Insurance Agent to help you!
CALL THE AGENT AT: 786-709-6577 -- VISIT:
www.knowledgefinancial.com
I Will Provide You With High Quality Life Insurance
I Offer You My Clients; Integrity, Safety and Stability.
A commitment to Fairness and Honesty.
Exceptional Personal Service!
ANTONY JEANTY
Phone- 786-709-6577
Licensed Real Estate Agent
Licensed Mortgage Broker
Licensed Insurance Agent
MIAMI DADE, BROWARD, PALM BEACH, PORT
SAINT LUCIE, ORANGE COUNTY AREA. CALL THE
AGENT AT: 786-709-6577
CAREER OPPORTUNITY FOR ALL.
HELP TO ESTABLISH YOUR OWN BUSINESS, OR
START WORKING IMMEDIATELY WITH ONE OF THE
GREATEST
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-----------------------------------------------------
Life Insurance with a certified,
licensed and experienced Agent. CALL THE AGENT AT:
786-709-6577
It makes good sense to have us as
your Insurance Agent to help you!
CALL THE AGENT AT: 786-709-6577 -- VISIT:
www.knowledgefinancial.com/LIFE-INSURANCE
I Will Provide You With High Quality Life Insurance
I Offer You My Clients; Integrity, Safety and Stability.
A commitment to Fairness and Honesty. Exceptional
Personal Service!
ANTONY JEANTY
Phone- 786-709-6577
Licensed Real Estate Agent
Licensed Mortgage Broker
Licensed Insurance Agent
MIAMI DADE, BROWARD, PALM BEACH, PORT SAINT
LUCIE, ORANGE COUNTY AREA.
CALL THE AGENT AT: 786-709-6577
www.knowledgefinancial.com
HELP TO ESTABLISH YOUR OWN BUSINESS, OR
START WORKING IMMEDIATELY WITH ONE OF THE
GREATEST
FINANCIAL SERVICES COMPANY IN THE WORLD?
FREE SCHOOL, FREE TRAINING, FREE LICENSE
FREE FINGERPRINT, FREE BOOKS FOR THOSE WHO
LIVE IN
MIAMI DADE AND BROWARD COUNTY FLORIDA
VISIT:
http://www.knowledgefinancial.com/financialsolution.html
-----------------------------------------------------
Life Insurance with a certified,
licensed and experienced Agent. CALL THE AGENT AT:
786-709-6577
It makes good sense to have us as
your Insurance Agent to help you!
CALL THE AGENT AT: 786-709-6577 -- VISIT:
www.knowledgefinancial.com/LIFE-INSURANCE
I Will Provide You With High Quality Life Insurance
I Offer You My Clients; Integrity, Safety and Stability.
A commitment to Fairness and Honesty. Exceptional
Personal Service!
ANTONY JEANTY
Phone- 786-709-6577
Licensed Real Estate Agent
Licensed Mortgage Broker
Licensed Insurance Agent
MIAMI DADE, BROWARD, PALM BEACH, PORT SAINT
LUCIE, ORANGE COUNTY AREA.
CALL THE AGENT AT: 786-709-6577
www.knowledgefinancial.com
China stretches the imagination with world's longest sea
bridgeBarely 18-months after completing current record-
holder, work begins on link between mainland, Macau
and Hong Kong
"It is designed with a service life of 120 years. It can
withstand the impact of a strong wind with a speed of 51
meters a second, or equal to a maximum Beaufort scale
16 (184 to 201kmph)," said Zhu Yongling, an official in
charge of the project construction. "It can also resist the
impact of a magnitude-8 earthquake and a 300,000-
tonne vessel."
Much of the bridge will be fabricated offsite and will be
designed to withstand wind speeds of up to 201kmph
(125mph)
China today announced it had begun construction of the
world's longest sea bridge – barely 18 months after
opening the current record-holder.
The Y-shaped link between Hong Kong, Macau and
China will be around 50km (31 miles) long in total, 35km
of which will span the sea, said the state news agency
Xinhua. Due to be completed by 2015, the 73bn yuan
(£6.75bn) cost of the bridge will be shared by the
authorities in the three territories.
bridgeBarely 18-months after completing current record-
holder, work begins on link between mainland, Macau
and Hong Kong
"It is designed with a service life of 120 years. It can
withstand the impact of a strong wind with a speed of 51
meters a second, or equal to a maximum Beaufort scale
16 (184 to 201kmph)," said Zhu Yongling, an official in
charge of the project construction. "It can also resist the
impact of a magnitude-8 earthquake and a 300,000-
tonne vessel."
Much of the bridge will be fabricated offsite and will be
designed to withstand wind speeds of up to 201kmph
(125mph)
China today announced it had begun construction of the
world's longest sea bridge – barely 18 months after
opening the current record-holder.
The Y-shaped link between Hong Kong, Macau and
China will be around 50km (31 miles) long in total, 35km
of which will span the sea, said the state news agency
Xinhua. Due to be completed by 2015, the 73bn yuan
(£6.75bn) cost of the bridge will be shared by the
authorities in the three territories.
