Adventures in Money Making

Today's WSJ has a good piece on selecting a Financial Advisor. Since its a subscription site, here are the highlights.

Looking for an adviser? You've got to keep these five pointers in mind.

• Many advisers earn their keep by collecting commissions on the investments they sell. That means they have an incentive to get clients to trade and to buy the highest-commission products.

Your best bet: Use fee-only advisers, such as those who charge an hourly fee, a percentage of your portfolio's value or a fixed annual retainer.

• Most advisers have had little formal financial education. For instance, maybe 5% of brokers, financial planners and insurance agents have bothered to become a certified financial planner, or CFP, which has become the basic credential for any half-decent adviser.

To ensure your adviser is knowledgeable, stick with CFPs or, alternatively, folks who have qualified to be chartered financial consultants, chartered financial analysts or certified public accountants-personal financial specialists.

• Advisers don't necessarily act in their clients' best interest. This issue has been brought into sharp relief by the heated debate over the Securities and Exchange Commission's so-called Merrill Lynch rule. Under the rule, fee-based advisers at brokerage firms often aren't considered fiduciaries, meaning they are supposed to recommend products that are best for their clients.

Instead, they are held to a lower "suitability" standard, which means they are only required to recommend products that are a reasonable choice for their customers. To protect yourself, avoid advisers who won't commit to acting as a fiduciary.

• Many advisers offer investment advice -- and that's it. But there is much more to managing money than picking stocks and mutual funds.

You might also want help with your mortgage, college costs, insurance, taxes and estate planning. If so, before you sign on with an adviser, make sure the adviser is committed to assisting you with these other areas.

• Most advisers charge too much, especially when you consider the limited advice they offer. Whether you're paying fees or commissions, your adviser's services might be costing you 1% of your portfolio's value each year. Tack on the fees charged by the mutual funds and other investment products you end up buying, and your total annual tab might be 2% or even 3%.

Result: If your adviser recommends a balanced portfolio of stocks and bonds that returns 7% a year before costs, you could pocket less than 5% after all fees are paid.

That doesn't mean a good adviser couldn't garner you a better rate of return, while also helping you with the full array of financial-planning issues. But is your adviser truly helping your finances? Not sure? Remember, you can always buy Treasurys bonds instead. These days, that will also earn you around 5% -- with a whole lot less hassle.

Here's the original link

In a previous post updating my oil investing, I mentioned I was going to see an attorney.

One of my partners [with whom I've deal a couple of smaller real estate deals] and I met for just over half an hour with an attorney. We've used this attorney before and he's really sharp [not to mention expensive].

He said it would be easier to file under SEC regulation 504, which provides exemption from regulation requirements. In that only accredited investors are usually allowed into such investments. It is possible to have non-accredited investors but you then need to disclose so much bad stuff that they'd probably shy away anyway, plus you're limited to only 35 of them, which doesn't make the preparation costs of all the disclosures even worth it. [Unless you want to do full-blown offering which we definitely don't want to becuase of the cost involved.]

If we have only accredited investors and we're raising under $1 million, we only need a subscription agreement and questionaire[stating that the investor is accredited] and a brief offering circular. [We don't even need to mention all the risks. After all, the government expects accredited investors to know everything about investing. How else could a person even become accredited, what with the government trying to tax the accreditedness out of them!]. We may not even need a Private Placement Memorandum which is a thick book full of disclosures.[disclosures are nothing but worst case suggestions about how you're going to lose your money.]

I asked my attorney what happens if a non-accredited investor claim's to be accredited investor just to get in. He said if we know that a person is non-accredited then we cannot accept their money at all. [Although they face no penalties for lying other than they can't go crying to the SEC saying we didn't disclose all of the risks!]

We're not supposed to publicize this to people we don't know, so if you don't already know who I am, don't even ask me for more info! I'm only posting this for information purposes and to give other investors an idea of whats involved. Incidentally, Kiyosaki's book, Retire Rich, Retire Young where I first read about accredited investor status and SEC regulations regarding the disclosures of certain investments. Didn't think I'd ever need that knowledge! That was the book the gave me the impetus to stop reading books on real estate investing and finally take the plunge. Like all of Kiyosaki's books, its low on strategy and high on motivation [although less so than the others].

Lets see how things work out. One things for certain, whether or not we make any money, our attorney sure will!

Here's a somewhat related and very interesting topic on Starting Your Own Hedge Fund.

In a bid to avoid trying to lose customers who bought into Vonage's IPO, Vonage has told its underwriters that it will cover the cost. If customers no longer want the stock that opened at $17, closed at $14 and is now $12.50, then Vonage will agree to purchase those shares.

I think its a good show of faith on Vonage's part and it makes good business sense too. [Although offering customers a part of the IPO wasn't.]

Everyone always admires those people who do the right thing no matter what the consequences. Conversely, people despise those who lie, cheat and con their way to wealth. After a certain point in life, it doesn't even make sense to be dishonest.

There are two articles today about this. Enron's top execs Skilling and Lay were both incredibly wealthy before the Enron mess. Their personal fortunes, upwards of $50 million each were enough to live a great life without the additional 100's of millions in Enron stock. Now both are faced with spending their retirement years in prison and having their wealth depleted by legal fees and fines. McAfee's general counsel Kent Roberts was also fired today for an improper options grant that occurred in 2006.

You spend your whole life building a good rep and it only takes one wrong step to mess that up. And atleast the fear of jail should keep people honest.The ramifications are particularly bad when white-collar employees embezzle money. The jail term is usually greater than that metted out to murders and molesters. Another good reason to keep your hands clean!

The tenant who's check bounced contacted me today. As I thought, they was out for the long weekend. He said there was enough money in the account and it shouldn't have bounced. He was quite surprized when I told him that I had personally gone to the bank with his check and they told me he was broke.[well they didn't say that exactly, but it means the same thing]

Anyway I'm stopping by the bank tomorrow and if they claim he's short again i'll have them call the tenants and figure it out there and then. But a tenant who's pro-active about following up when the landlord calls is a slightly better quality of tenant!

Incidentally, Washington Mutual now looks like a Starbucks. I hadn't been in one for 2 years and I was amazed at the transformation. I tried looking for a picture of the insides but I found this image at Tee Commerce instead. Much more fun!

So far my investing has been going pretty good. [Apart from the small setback in the stock market crash of 2000.] I bought real estate in San Diego at the right time. I sold it at the peak. I got out of my other California properties right at the top too. I got into Salt Lake City right as it was about to take off. I bought some gold right before it made a 35% jump. So far I've been quite accurate at identifying investments trends and profiting from them.[Or maybe I've just been lucky!]

I've spent the past several months researching oil and gas and have even invested a bit in a small well and am about to invest in another one through my corporation's pension plan. I also think oil is going to be the next highly touted investment. I bet some washed-out actor like Eric Estrada will appear on late night ads promoting oil investments in the next 2 years.

Everyone knows that oil has jumped to $70 per barrel but most people don't know how to invest in it. Since I've figured out some of the steps and pitfalls, I think its time to capitalize on my knowledge. I'm planning on putting together an LLC with a partner which will pool in money from friends & family. Together we'll invest in several projects, thus lowering the risk.

Not only will I invest my money along with them, I'll take a small management fee. I'm thinking it'll be in the range of 30% of the profits after the investors get 10%. If I can't provide a 10% return then I really don't deserve any profit-split, right? Although most financial overseers don't agree with this philosophy, that was how Warren Buffet had originally set up his partnership. He got a 25% share of the profits after the first 6% was returned to investors.

Well I'm talking to an attorney about it tomorrow. I'll let you know what I find out.

I got a bounced check in the mail from my bank. The tenants in one of my Salt Lake City homes had their check bounce due to insufficient funds. I went to their bank WAMU on Saturday to see if they had sufficient funds in their account. Unfortunately they did not. Atleast I didn't redeposit it and waste another 2-3 weeks finding out whether it would bounce again.

I called and left them a message. They've probably gone out for the long weekend. On Tuesday, I'll have to have my guy stick a 5 day eviction notice on their door. Pay up or move out. The good thing about Utah is that its a landlord friendly state. It takes 2 weeks to evict a tenant, and most of the time the tenants don't even stick around that long. They just move out.

It never pays to be nice to your tenants. They just take advantage of you. Remember your tenants are not your friends. You are not in the welfare business. If they can't pay their rent, they need to ask Uncle Sam for help.

Ever wondered how you can deduct your Playboy magazine subscription on your taxes? Well neither did I, but read on anyway.

Doug of The Strategic Investor has a great post on Amy Sue Cooper, the Playboy Playmate who beat Mutual Fund managers at picking stocks. So now you can claim you read Playboy for the financial advice!!!

Here's a really good article about bloggers who made it big.

Most Bloggers make money from click-through advertisements, monthly flat-fee advertisements and occasionally from a big company and buys them out for a big chunk of money.

Blogs are replacing magazines and in some cases even newspapers. Not surprizing that some blogs are charging the same rates as newspapers do for advertising.

I had a really nice house being built in St. George, Utah. Now that the house is finished, I need to refinance a construction loan into a regular loan otherwise the interest rate jumps to 18% or higher.

Unfortunately my mortgage broker called me up to tell me that someone else's name is attached to my social security number and I need a letter from Social Security Office proving that its my number.[and not some random number I just made up since I crossed the border last week?]

Thought it was going to be a big hassle, but it turns out it wasn't too bad. Got it in an hour and faxed it off. The guy behind the counter said the credit bureaus sometimes make errors typing in stuff. It probably wasn't a case of identity theft. Besides, with the 20+ mortgages in my name, no one can get a loan to buy anything with my credit!

Hopefully the letter should be enough. I hope the underwriter doesn't deny the loan. I can't afford to pay 18% on a 320k loan!

As previously mentioned, this blog used to be worth just under $7,000. Now I found that its value has doubled in the past 6 months to just over $14,000.



Of course, changing the code, makes it worth even more!

I'm selling a property I bought in Salt Lake City. It was the first property I bought there and I made a few mistakes on it. Not only didn't it have front landscaping, it had rubble in the front yard and subsequently had 3 foot weeds growing there.

Also had a run of bad luck with tenants. They kept moving out!

Finally I got bored and one of the cousins of my ex-tenants got his friend to put an offer on the house. I think the house is worth $260,000 less $9k for landscaping or $251k. He put an offer for $242.5k which is more than I'd fetch if I would have listed it with a broker so I took it. Considering I bought it for $210k, that a nice 32.5k profit less around 3-4k in vancancies, or roughly around 28k. Plus I get my 10% downpayment back.

Its a good time to be getting a check for around 50k!!! I have several oil deals I want to invest it in.

Now my problem is whether I want to do a 1031 exchange on this property. If I do, I don't pay tax on the proceeds, but I also tie up my 21k downpayment for a long time.
In a 1031 exchange you DO NOT get to pull your downpayment out of the deal. Plus I may not be able to invest in the oil deals - it has to go into real estate deals, which most of the oil deals will not [although oil deal sometimes can qualify as real estate deals and be eligible for 1031 exchanges. The downside is they're more expensive to get into and that eliminates any advantage of not paying taxes].

Since I have several properties at this point, I have roughly 45k in depreciation losses. Since my maximum passive loss is capped at 25k, I have 20 to offset against passive profits or the 28k I'll be making off this deal! That way I get my 21k back and I pay taxes on the remaing 8k, or roughly $1,200! I can live with that. Plus I'm still carrying over 15-20k of losses from the stock market crash of 2000! So I probably won't end up paying any tax on the profit.

And the sweet thing is the investor actually took over the lease-option agreement of the previous tenant and is paying rent until the loan closes! Of course I charged him a $2k assignment fee which helps mitigate my vacancies.

The Minor Thoughts Blog has a brief note on taxing the rich calledTaxing Paris Hilton.

Not necessarily Hilton specific, but the concept is sound. If you do away will all forms of taxation and replace them with a consumption tax, the rich will pay more tax simply because they spend more money.

Unfortunately, the Indian government ruined this relatively simple idea recently with the introduction of the service tax. They kept all forms of tax[including the short term capital gains tax of 10% and long term[12months] tax at 0%, yes ZERO] and just added a 10% service tax on all services [legal and medical services included]. Since the wealthy are likely to have more income from capital gains while everyone pays relatively the same for basic services, this is effectively a tax on poor people. WAY TO GO!

Labels: Paris Hilton

After todays unsurprisingly poor performance by Vonage, the next IPO is MasterCard.
Unlike Vonage, MasterCard is pretty profitable, and with a market cap of about $5 Billion [about twice that of Vonage] actually seems like a pretty good deal. Also unlike Vonage, they're trying hard to make money [upto the point of gouging both card holders and retail shops]. Incidentally Vonage did claim that they weren't to serious about making money, they only wanted to focus on building their client base.

One dark spot is the $1 Billion payout with WalMart over the next 10 years and the potential for lawsuits regarding high transaction costs, fees and interest rates.

But if you're carrying high balances on your credit cards, this is probably a great way to hedge your bets!

Since people aren't buying a lot of GM's gas guzzlers, GM's marketing team has hit on a novel way to entice customers in California and Florida to buy certain vehicles by July 5th.

One caveat is that customers must also agree to enroll in the OnStar vehicle diagnostic service, which is free for the first year but after that will cost $16.95 a month. Each month for one year, GM will give drivers a credit on a prepaid card based on their estimated fuel usage. Fuel usage will be calculated by the miles they drive, as recorded by OnStar, and the vehicle's fuel economy rating.

In California, eligible vehicles are the Chevrolet Tahoe and Suburban sport utility vehicles and Impala and Monte Carlo sedans; the GMC Yukon and Yukon XL SUVs; the Hummer H2 and H3 SUVs; the Cadillac SRX SUV; and the Pontiac Grand Prix and Buick LaCrosse sedans. In Florida, eligible vehicles are the Impala, Monte Carlo, Grand Prix and LaCrosse.

It works out to a saving of about $100/month if you drive 1000 miles/month. So its basically a $1200 incentive. BIG DEAL!

Yahoo news reports Sales of new homes up 4.9 percent in April.

While that makes a nice sounding title, the rest of the article is slightly incomplete. The links for Yahoo news usually disappear so I'm not posting the link to the article. Instead here's a summary of the interesting parts. You'll see its slightly less optimistic.

The Commerce Department reported Wednesday that sales of new single-family homes increased by 4.9 percent last month to a seasonally adjusted annual rate of 1.198 million units, the highest rate since last December.

Economists, who had been forecasting a sales decline in April, said the increase had been skewed by the fact that the government lowered sales activity significantly in prior months.

Also, they noted that the number of unsold homes remaining on the market at the end of April rose to the highest level on record, an overhang that they predicted would depress prices going forward.

The median price of a new home sold in April was $238,500, up just 0.9 percent from a year ago, far below the double-digit price gains sellers were enjoying last year at the peak of the housing boom.

"Housing is holding up better than we had thought given how much mortgage rates have gone up, but we still expect it to weaken as the year goes forward," said David Wyss, chief economist at Standard & Poor's in New York.

Wyss said he expected home sales would drop by 10 percent this year and that construction of new homes and apartments would be down by about 8 percent.

According to this article Buffalo should be in the top 50 places to live.

Buffalo goes head-to-head with most of the Top 50 and comes out ahead.

Sperling can't speak for Kiplinger's, which chose the Top 50. But he said Buffalo is a contender just for its low-cost housing and quality of life.

"People are working hard to bring [Buffalo] back," Sperling said by phone from Oregon. "Look at the downtown development you're doing."

Add Great Lakes boating, fishing and swimming; skiing an hour from downtown; two pro sports teams and low-crime, school-rich suburbs, and we're knocking on the Top 50 door.

Within a two-hour drive lie Toronto, Niagara Falls, Niagara-on-the-Lake and the Chautauqua Institution. What besides co