Senin, 28 Agustus 2017

7 Things to Consider before Improving Your Rental Property

In the context of comprehensive financial planning, our clients often want to know if it makes sense for them to improve their rental property. This is a really good question, and we think there at least 7 things to consider before making such decisions:

Obtain comparisons. Before making improvements, it makes sense to obtain comparisons from other rental units that have similar upgrades so that you can find out how much more you might be able to obtain in rent for making improvements. These comparisons can be obtained on Craigslist and other rental websites.

Get local advice. Have a local real estate professional who is familiar with the area come take a look at your property and provide you with her/his perspective on what improvements/repairs might result in higher rents. A local professional is often very familiar with surrounding properties and can be an invaluable resource. If the agent thinks there’s a possibility of gaining you as a client at some point, then you can often obtain their feedback at no cost.

Be careful not to make upgrades that your local market won’t support. Some people make the mistake, for example, of making high-end improvements in a rental market where those improvements won’t increase their ability to obtain higher rents or increase the value of the property. Personal knowledge and judgment is paramount here; some landlords maintain a strategy whereby they aim to keep repairs and improvements to a minimum, and they’re still able to attract enough in rents to make a profit. Others landlords, however, need to make improvements in order to get their rents to a place of profitability. Of course safety is always critical, and you’ll want to ensure that your property is regularly maintained in such a way that it will adhere to appropriate safety standards.

Focus on profitability. We recommend that you analyze your rental in terms of a calculation called a capitalization rate (cap rate). The cap rate is the ratio of Net Operating Income (NOI) to property asset value. For example, if a property was listed for $1,000,000 and generated NOI of $100,000, then the cap rate would be $100,000/$1,000,000, or 10%. This is an easy way to get a sense as to how hard your investment is working for you. If your cap rate is negative or is very low and, if you could earn a higher rate of return on your money elsewhere, then it makes sense to improve your cap rate or invest your money in a more profitable investment. Don’t forget that, at the end of the day, a rental is an investment like any other investment, and the goal is for it to be profitable.

Know that certain repairs will always be necessary. Paint and carpet are generally two expenses that will need to be incurred on an ongoing basis. Some landlords plan to do both every two years. Using personal judgement on how much money to invest in paint and what grade of carpet to use will depend on the types of renters you attract and how long they tend to lease from you. Generally semi-gloss paint is more durable, yet still looks professional, and a mid-grade carpet can be installed at a more reasonable cost than a more high-end carpet. 

Consider your broader finances. When it comes to making upgrades and repairs, you’ll want to think about how you’ll pay for the upgrades and repairs. If you’ll have to finance the costs, you’ll also be incurring interest charges, and this could decrease your overall profitability. If you’ll have to pull money from another profitable investment, then this, too, could diminish your net profitability. If, however, you’ll be using money from a low-interest savings account, then perhaps your improvements/repairs will result in increased rents and a better rate of return on your capital.

If you are going to improve your property, focus on improvements that will pay off. Kermit Baker, director at the Joint Center for Housing Studies at Harvard University, maintains that kitchens and baths are what tend to pay off the most, and sometimes these improvements can pay off by as much as 80%. 

Article Source over here: 7 Things to Consider before Improving Your Rental Property

Rabu, 16 Agustus 2017

Dunston Financial Group Featured in InvestmentNews

Dunston Financial Group was recently featured in InvestmentNews magazine in an article on the "9 big dreams that advisers made come true for clients". We love to help our clients accomplish their financial goals, and we believe that proactive financial planning is one of the best ways to do this.

Original Post here: Dunston Financial Group Featured in InvestmentNews

Selasa, 01 Agustus 2017

How to Know How Much Life Insurance You Need

An important part of responsible financial planning is to protect yourself against risk events that can be financially devastating. One such event is a premature death. When trying to understand how much life insurance you should own, you should take into consideration two things: 1) What lump-sum expenses you might want paid for, for example a mortgage, college tuition costs, other debts, and funeral expenses, and 2) Any income that you and/or a survivor might want replaced, such as a prior salary. Generally you don't want this salary to be replaced indefinitely, but rather a common practice is to replace it until the survivor reaches retirement age. This calculation is a bit too complex to work out here, but the proper way to calculate this income need is to ensure that it inflates each year and will keep pace with inflation.

One very crude way to get a ballpark estimate of how much life insurance it would take to create an income stream is simply to capitalize an income need. For example, if you think that you need $2,000 a month in replaced income ($24k a year), then simply divide $24,000 by an interest rate at which you think you could invest the funds to spin off $2,000 a month in income. So, $24,000 divided by 8% results in a capital need of $300k. To put this differently, if you invested $300,000 at 8%, it could generate $2,000 a month in income. Again, this is very crude and inaccurate, and it shouldn't be used for anything more than rough estimates (it's inaccurate because it doesn't take into account taxes and fees, nor does it cease to create an income stream at retirement, and thus it can over-inflate the need, and it also doesn't adjust for inflation).

Finally, one needs to subtract from the income need and the lump-sum need any other sources of income or capital, for example rental income (if the survivor will continue to be a landlord), or other sources of life-insurance or assets that could be earmarked for a survivor's needs.

If you would like assistance with calculating how much life insurance you need, or if you would like a professional overview of your existing policies, feel free to reach out to us here.

Article Source right here: How to Know How Much Life Insurance You Need

Senin, 31 Juli 2017

Why It’s So Hard to Spend Down Your 401(k) in Retirement

Will I underspend my assets? Will I run out of money? These are questions that retirees face every day as they decide how much to withdraw from their retirement plans. In a recent MarketWatch article, Alicia Munnell expresses concern about the millions of Americans who will be entirely reliant on their 401(k) assets at retirement:

At a recent conference, retirement experts concluded that the lack of an easy drawdown mechanism in 401(k) plans was the major challenge facing the 401(k) system.


In 2014, the Treasury Department and the IRS issued guidance that made longevity annuities accessible to 401(k) plans and that enabled target date funds to include annuity contracts either as a default or as a regular investment option. But individual plan sponsors feel under siege by lawsuits and see little payoff to being innovative. At the same time, Congress is unlikely to mandate that annuities be a part of 401(k) arrangements.


So we are at a standstill. Millions of Americans — having been told that their retirement plans are automatic — will be handed a pile of money and told they are on their own. Neither academics nor policymakers really have any idea how they will behave. Recent studies show that people draw down their balances in retirement much more slowly than expected. But most of today’s retirees with a retirement plan have an old-fashioned defined benefit plan, so these studies have little to say about the likely behavior of those retiring entirely dependent on 401(k) plans.

Munnell is onto something here. Working with retirees every day, our firm has concluded that a major risk to retirees is their lack of of a retirement drawdown strategy. In other words, they need a coherent strategy that will help them turn their life's savings into a regular pay check that will last as long as they do. Given that there are at least ten strategies for accomplishing this task, selecting and implementing a retirement drawdown strategy is easier said than done. Munnell cites a Boston College study that leads her to favor the RMD method, but this is only one strategy out of many and, depending on one's unique set of circumstances, it may not be the most effective.

Nevertheless, Munnell is spot on when she points out the many hurdles one must overcome when deciding how best to spend down retirement savings:

First, people seem to have a psychological attachment to their pile; they have spent a lifetime building it up and may be reluctant to draw it down. Second, people are fearful about end-of-life health care needs and want to be sure they have enough money to cover their expenses. Finally, people seem to have a desire to leave a bequest — perhaps ensuring their immortality. So, without some guidance, chances are high that retirees will deprive themselves of necessities.

In light of these retirement complexities, the best course of action one can take is to educate one's self on the many drawdown options that are available. It's also a good idea to develop a retirement income strategy in the context of one's larger financial circumstances. This is important because a strategy that's right for one person may not be right for someone else. Working with a comprehensive financial planner who is a fee-only fiduciary can also be a good way to obtain a more comprehensive strategy that can help one avoid potential blind spots.

At Dunston Financial Group, we regularly assist both retirees and pre-retirees with their retirement income strategies, and we're always happy to be a resource for retirees who are attempting to navigate this important and complex topic. If you would like assistance, you can reach us here.

Originally Posted here: Why It’s So Hard to Spend Down Your 401(k) in Retirement

Rabu, 19 Juli 2017

Should You Invest in Digital Currency?

I recently spoke with someone who told me that he removed all of his cash from the bank and 401(k) and invested it in digital currency. Indeed, some are finding that investing in digital currencies such as Bitcoin and ether can earn a high rate of return. But before you join the stampede into the world of digital currency investing, consider this recent news excerpt from Seeking Alpha:

Cryptocurrencies took a beating this past weekend. Bitcoin traded as low as $1,836, down about 8% on the day, and almost 40% from its high of $3,018 on June 11, while ether plunged almost 20% to $155, knocking off about 60% from its high of $395 on June 13. The selloffs are yet another stark reminder that digital assets remain highly speculative trading vehicles.

Moreover, the co-founder of ethereum network recently told Bloomberg News that the digital currency ether is "a ticking time-bomb.” “There’s an over-tokenization of things as companies are issuing tokens when the same tasks can be achieved with existing blockchains. People are blinded by fast and easy money.”

Ah, yes. "Fast and easy money." Digital currency investing may be the sexiest investment that's come along in a while, but the allure of fast and easy money has been around for millennia, and there's no shortage of people who have been devastated in their pursuit of riches.

Of course we've seen this before. One might recall the late '90s when high-tech mutual funds were creating nothing short of a feeding frenzy on Wall Street. But one also shouldn't forget the countless people who lost everything after they made huge bets in technology only to watch many of their investments go bankrupt.

The temptation to make big money will never go away. But the lessons from history and successful investors of the past are tried and true, and they should not be forgotten. Before investing in digital currency, or any other investment, consider the following:

  1. If it sounds too good to be true, it probably is.
  2. For every person who makes it big, there are usually many more who took significant losses.
  3. Any investment that falls into the category of "highly speculative" should not be earmarked for any serious financial goal. If you're saving for retirement, education, a wedding, a future home, or any other important goal, speculative investment vehicles are not the right place for your money. Speculative investments are for people who can afford to lose their entire investment.
  4. Diversification is key. Significant concentrations of money should not be made in any one investment or asset class.
  5. Slow and steady wins the race. Disciplined, long-term investing may not always be cool, but following a focused and strategic investment plan, usually centered around stocks, bonds, and real estate, will outlast the latest high-return investment and will give you a higher probability of success.



Originally Posted over here: Should You Invest in Digital Currency?