Roth IRA: When's the Best Time to Start?

The best time to start or fund your Roth IRA is - NOW!

If you haven't started your Roth IRA, you should seriously consider opening an account ASAP! If you have a Roth IRA and haven't funded it yet for 2007, you still have time. Here's a good article on why you should have a Roth IRA.

The timing couldn't be better. For one, you can still fund your Roth for 2007 up until April 17th, your tax return deadline and then turn around and fund your 2008 contribution right afterwards in one lump sum or incrementally throughout the year.

For 2007, your max. contribution is $4,000 ($5,000 over age 50) and for 2008 the max. is $5,000 ($6,000 over age 50). If you're married, your spouse can also fund a Roth at the same amounts, even if that spouse doesn't have earned income, as long as you file a joint return.

If you're wondering where the money to fund your Roth will come from, consider investing your Tax rebate. If you're married and have 2 children, you could receive up to $1,800 depending on your Adjusted Gross Income. What's the value of that $1,800 over 20, 30, 40 years or more? Use this calculator to see (use 0% for the Federal & State taxes).

Not all Roth IRA's are created equal. The primary feature of a Roth IRA is that you can invest after tax dollars to grow tax free and to make withdrawals tax free. Before you set up an account, make sure you understand the internal fees for that Roth IRA. Some mutual funds inside your Roth have a lot of internal costs that will eat away at your rate of return. Warren Buffet recommends index funds for the non professional investor. Check with a qualified fee only advisor for the best account options.

If you have a son or daughter helping you in your business, help them understand the value of starting a Roth IRA as early as possible and the power of compounding. Their contribution can be equal to their annual earned income amount up to the maximum allowed. Try this on for size:

A 17 year old contributes $1,000 of earned income into their Roth IRA each year for 10 years and stops with a total contribution of $10,000. Assume a 10% rate of return. Here are some estimated results:

• When they are 27, the value of the Roth would be $17,531
• When they are 37, the value of the Roth would be $45,471
• When they are 47, the value of the Roth would be $117,941
• When they are 57, the value of the Roth would be $305,908
• When they are 67, the value of the Roth would be $793,448
• When they are 77, the value of the Roth would be $2,057,999

Remember, this is tax free income (as the law now stands) after 59 1/2. Start young and let the power of compounding work for you.

Self Directed IRA's

On another note, did you know you can buy and sell real estate through a Self Directed IRA? Why would you want to do this, you ask? What if you could pick up an REO property at discount, fix it and flip it or lease it and sell it later at a profit. That profit is not taxable.

This is a very simplified example, so you should definitely talk to someone in the know. A good company to get more information from is The Entrust Group.

If you don't have enough money in your Self Directed IRA to purchase a property alone, consider partnering with one or more trusted associates and buy a property. You know there's a lot of good deals out there.

As always, consult with a qualified CPA and Financial Advisor to determine how to set this all up to best meet your short and long term goals, but start now!

The Cashflow Coach

• Mortgage Lender & Coach
• Providing a full range of mortgage services.
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RSS Dashboard

I'm hoping that I'm not the last one to know this and that this post will be valuable to a lot of my readers.

Most of you know what an RSS feed is and how important it is in getting people to subscribe to your blog. Have you ever wished there was an easy way to aggregate all of the different feeds that you subscribe to versus checking your email inbox throughout the day?

I know I did and the answer I found was................NETVIBES.

If you're not familiar with Netvibes, it is one of the coolest web aggregators I have ever found (which is not saying much) without the ads. That's quite a combination - Free and without ads, who would've thought?

It is a free site, you just need to register with a login and password. Once you do that, you can start customizing the page to display any and all of your RSS feeds along with a number of other widgets, including a Bookmark section where you can store all of your favorite websites. The advantage of storing your favorite websites in this bookmark widget versus your PC's web browser is that your bookmarks will be available from any computer with Internet access by logging into your Netvibes account.

Here's a quick blurb on the benefits of Netvibes:

• Helps you manage your digital life and share it with your friends
• Brings all your favorite MySpace, Digg, YouTube, Gmail, Flickr, eBay, del.icio.us accounts - you name it (no, really, you can rename our entire site) - together on your own personal Netvibes page
• Share with your friends or colleague your favorite modules
• 100% customizable - no ads, no logos, no corporate control

After you have your Netvibes account set up, you can make it your default home page and voila!, whenever you open up your web browser, you'll get a "dashboard" look of all of your favorite feeds on one page. This has been a great time saver because I can look at all of the titles and decide which one I want to read and which ones I'll wait to read until later.

Hope this website is as useful to you as it has been for me, hopefully, I'm not the last one to learn about it.

The Cashflow Coach

Copyright © 2008 the Cashflow Coach | All Rights Reserved

What's a Penny Worth?

One Penny = $632,500 or 1 + 1 = $1,265,000

How do you like that math? That's how much a collector won at an auction last Friday in Texas. The total amount gained from the auction? $10.7 million dollars. I think most investors would consider that an infinite rate of return.

Makes you want to look through your loose change to see if there's a penny that's worth more than face value, or maybe not.

To learn more about this story, click here.

The Cashflow Coach

Median Home Prices Decline - The Positive Perspective

"WORST IN NATION: AREA HOME SALE PRICES PLUMMET IN 4^TH QUARTER" (from the Lansing State Journal, 2/15/08)

This was on the front page of our local paper. Why do the news makers report the most outrageous stats? It's probably because "Shock and Awe" sells papers.

A more accurate line would be:

"Lansing, like almost every other city in the nation, sees declines in real estate values and reduction in numbers of sales in the 4th quarter. On the whole, Lansing is not down all that much when you really analyze what's really happening."

My headline is more accurate, I doubt if anyone at the Journal would print it though. Here's the actual report sorted by largest decline from the National Association of REALTORS®. Note the "p" next to the "2007 IV" column heading and you'll see that these are preliminary numbers not the final numbers.

So what is really happening:

1. Median just means the middle. So if 5 homes sold today, one for $300,000, another for $350,000 another for $109,000 another for $105,000 and the last one for $108,000, then the median would be 109,000. Because it's the one in the middle of the others.

2. Don't confuse median with average. The average sale price in the above set of numbers would be $194,400 (add the sale prices together and divide by 5).

a. The average home price in the Lansing area in December of 2007 (from Michigan Association of REALTORS®) was $141,022. Only a -5.79% drop for the year and a -2.18% drop from the 3rd quarter, 2007 average.

b. Lansing is as we have been saying for 15 years a very stable, boring market (think of the tortoise not the hare); just like you want real estate markets to be. We did not see home sale prices double in the last 5 years and we wont see them cut in half either.

3. Don't confuse appraised value with market value. Over the last 5 years or so, home owners were going to their mortgage lenders every two years or so and reducing their interest rates. Every time, their home value seemed to go up. Remember, the value has not increased until you sell it.

4. Year to date, I am still finding that the appraised value of my client's homes are at or around their 2002 - 2004 appraised values and more often than not, still at or around the SEV x 2.

So,

1. If you don't need to sell your home, don't. Rent it or keep it for a while, but if you don't need to sell it - Don't. One less house on the MLS will keep values higher.

2. There are some great deals out there as banks own more and more homes. Consider buying one, fixing it up and renting it to a family in need for a very fair rent. It will get a house off the market, improve a neighborhood, help a family and you will almost certainly do well financially.

3. Join the Cornerstone Home Loans Supply and Demand team. We have set a goal to help our clients and Realtors to sell 300 homes in the Lansing area. These are both REO and non-REO homes. We will track the sales and keep you updated. Read our previous post on why this is important for the Lansing area.

4. Subscribe to our Blog to stay current on the real estate market - take advantage of this. Get the facts before you start getting down or making misinformed decisions. If you want a more fair perspective - keep reading our blog.

The Cashflow Coach

• Mortgage Lender & Coach
• Providing a full range of mortgage services.
• Subscribe to my blog to stay updated on new articles.
• Now offering a full range of Investment Planning services

Copyright © 2008 the Cashflow Coach | All Rights Reserved

FHA vs. Conventional Loans

The FHA has been in the news a lot lately. More recently because of the pending conforming loan limit changes. Just a word on that, especially those of you in Michigan - don't expect much if any change in our conforming loan limits.

The calculation is based on 1.25% of the median home values. Which means for Michigan homeowners our calculation will be based on a average value of $141,000 x 1.25% = $176,250. This is well under the current conforming limit of $417,000 and on top of that, we are not considered a high cost living area. So if you have a jumbo loan (loan amount greater than $417,000) I would not plan on refinancing for the sake of refinancing.

Why will FHA loans be the most used in 2008 by lenders who are working in the interest of their home buyer clients?

1. Interest rates are consistently lower than conventional loans by 1/8% to 1/4%
2. FHA Mortgage Insurance Premium rates are lower than conventional PMI rates with similar down payments and are tax deductible like interest.
3. PMI is now deductible, if you itemize on your tax return (please consult a tax professional). This makes the effective cost of this loan in a lot of cases less than a comparable conventional loan.
4. The minimum down payment is 3%. In some cases, subject to appraisal and seller approval) the seller can even gift this amount. Seller are still able to pay all of buyers' closing costs usually around 3 or 4% (can pay up to 6%).
5. Even though conventional loans can approve borrowers for $0 down based on underwriting, Fannie Mae is tagging many neighborhoods as declining value areas and requiring 5 to 10% down payment minimums for many borrowers. Some lenders are no longer doing $0 down loans at all in Michigan. Within the last week a few of our lenders no longer offering conventional 0% down loans the minimum down payment on purchases will be 10%.
6. Credit scores are allowed to be less than conventional loans (often a 600 score is all that is needed to be approved).
7. Loan limits are around $200,000 with no maximum income requirements.
8. It is a great option for someone who has and ARM loan adjusting and has a stagnant appraised value. FHA is more easily able to combine first and second mortgages with fixed rates and reduce the total mortgage payment.
9. FHA underwriting still allows for deferred student loans to be ignored in debt to income ratios for approvals.
10. FHA loans are automated and documentation requirements are streamlined. Many agents who have in the past worked with higher sale priced homes, and have not dealt with FHA for a few years, you will be surprised at how much easier they are now.
11. Can finance doublewide manufactured homes with little money down.

I have been in the lending business for almost 15 years. In the last 7 years, because conventional loans made lending possible for many more home buyers without the upfront PMI, my clients closed very few FHA loans. Since January 1, 2008, however, I have originated more than 15 FHA loans and will close most of those this quarter. I am excited about how easy, inexpensive to the borrower and flexible they are.

If like me, you have not used them, reconsider them for your home sales. If you have been using them consistently over the last few years, keep using them. They are becoming a first option for competitive lenders in serving their clients.

A couple of additional considerations:

1. The home still needs to pass inspection - FHA will be more lenient on this in 2008 than before but it should still be considered. You will begin to see more FHA 203k (home improvement) loans offered. These loans do add expense and time to processing. Combining a construction loan program to a government loan program will be more cumbersome.
2. FHA still charges an UFMIP (up front mortgage insurance premium). This is 1.5% of the loan amount ($2,250 on a $150,000 loan) and is added to the loan amount at closing. Remember, this can be refunded in part within seven years if the loan is paid off during that time. First time homebuyers will usually get some of this money back when they sell their home.

The Cashflow Coach

• Mortgage Lender & Coach
• Providing a full range of mortgage services.
• Subscribe to my blog to stay updated on new articles.
• Now offering a full range of Investment Planning services

Copyright © 2008 the Cashflow Coach | All Rights Reserved

Tax Time Help

2007 Taxes

For those of you who like to get their taxes done right away, make sure you're aware of some delays the IRS is having due to some late changes in the tax code. For the rest of us that wait til the last minute to file or choose to file an extension, we won't have to worry about some of the delays. For a really good article on the changes, read this Marketwatch article by Andrea Coombes...

Here is a summary of some of the main changes to the Tax Laws in 2007:

Alternative Minimum Tax (AMT):

Congress passed a "patch" to keep income limits in line with the non-AMT income thresholds. This should help some of you who may have fallen into the AMT last year. Because the changes to the AMT didn't happen until 12/19/07, the IRS is still updating the necessary forms and therefore must wait until after 2/10/08 to file.

Homeowner Benefits:

• Deductibility of private mortgage insurance (PMI)
• Mortgage Forgiveness Debt Relief

Form 1040 Changes:

• addition of deductions for higher education tuition and teacher's expenses (you'll need the New Form 8917)

Stricter Giving Rules:

• you now need a receipt (for your records) for all contributions made by with cash, even if it's under $250.
• Clothing & household items need to be in "good" or better condition to qualify as a deduction. Consider taking a picture of the item to have in your file in case the IRS wants verification during an audit.
• If you donated a car or anything over $5,000, you need a qualified appraisal.

More Perks for Higher Income Earners:

• Allowable itemized deductions were reduced for AGI's above $145,950 by 3%. That 3% has been lowered to 2% for 2006 & 2007. This will be reduced again to 1% in 2008 and zero in 2010.
• So if your AGI is above $145,950, you'll be able to claim more of your deductions.

Some good habits to develop to maximize your tax deductions:

• Keep a notebook or journal in your car and Track your actual mileage (date, beginning miles, ending miles, who met with)
• Keep an envelope handy to store your receipts for office supplies, meals with clients, and other business related expenses.
• work with a qualified CPA to maximize your deductions and better yet, so you can plan ahead and are prepared for changes in the tax code.

This post is meant to provide a quick snapshop of some of the tax changes. Please consult with a qualified tax professional and/or CPA to gain a better understanding of how these changes effect you.

the Cashflow Coach

Foreclosure: What To Do If You are Facing It

There is a lot of misinformation and frustration in the foreclosure process. I hope the following information and links will help you better understand what is happening to you and how you can better communicate to your lender.

"Foreclosure is a legal process by which a bank, mortgage company or other creditor takes a homeowner's property in order to satisfy a debt. The foreclosure is the result of non-payment of the mortgage (including second mortgages and home equity loans); however, people also lose their homes due to unpaid property taxes. As a result of the foreclosure (at the end of the redemption period), the homeowner loses the rights he or she had to the property."

Communication with your Lender as early as possible will be helpful. The following information can be found at the Federal Trade Commission...

Contacting Your Loan Servicer

Before you have any conversation with your loan servicer, prepare. Record your income and expenses, and calculate the equity in your home. To calculate the equity, estimate the market value less the balance of your first and any second mortgage or home equity loan. Then, write down the answers to the following questions:

• What happened to make you miss your mortgage payment(s)? Do you have any documents to back up your explanation for falling behind? How have you tried to resolve the problem?
• Is your problem temporary, long-term, or permanent? What changes in your situation do you see in the short term, and in the long term? What other financial issues may be stopping you from getting back on track with your mortgage?
• What would you like to see happen? Do you want to keep the home? What type of payment arrangement would be feasible for you?

Throughout the foreclosure prevention process:

• Keep notes of all your communications with the servicer, including date and time of contact, the nature of the contact (face-to-face, by phone, email, fax or postal mail), the name of the representative, and the outcome.
• Follow up any oral requests you make with a letter to the servicer. Send your letter by certified mail, "return receipt requested," so you can document what the servicer received. Keep copies of your letter and any enclosures.
• Meet all deadlines the servicer gives you.
• Stay in your home during the process, since you may not qualify for certain types of assistance if you move out. Renting your home will change it from a primary residence to an investment property. Most likely, it will disqualify you for any additional "workout" assistance from the servicer. If you choose this route, be sure the rental income is enough to help you get and keep your loan current.

If you reside in Michigan, then here is a simple outline of what to expect. Thanks to Ethan Dozeman for this information from his post.

The 6 Stages of Foreclosure:

Stage 1: 30 to 90 Days delinquent on mortgage payments.

The Lender reports late payments to the Credit Bureaus (TransUnion, Equifax, & Experian.) The Lender notifies the borrower by mail and by phone to encourage them to catch up on past due payments.

Stage 2: 90 to 150 days delinquent on mortgage payments.

The Lender sends the file to foreclosure attorney. Foreclosure proceedings begin. Must bring mortgage completely current to stop foreclosure, no partial payments accepted.

Stage 3: 5 weeks of advertising a Sherriff's sale.

Lender must advertise property sale to pay off the mortgage balance for 5 weeks. The sale must be advertised in prominent newspapers.

Stage 4: Sheriff's Sale

Property sale is held at the county courthouse. The winning bidder is usually the lender who bids the amount of their debt. Lender becomes owner subject to the rights of the borrower to redeem the property.

Stage 5: 6 month to 12 month redemption period

The borrower has 6 or 12 months to redeem the property by paying the lender in full. 6 month redemption period if the property is less than 3 acres. 12 month redemption if the property is more than 3 acres. 1 month redemption for an abandoned property.

Stage 6: Redemption period expires and the Lender controls property

Lender (or highest bidder from Sherriff's sale) now owns the property free and clear of any junior lien. Lender can now consider offers on the property. Borrower is evicted from the dwelling.

Understanding the Short Sale

An alternative to foreclosure is the short sale. This is the process of negotiating with the Lender to accept a lower price on the property than what you owe.

Why would the Lender accept less than what you owe on the property? In some instances, they would accept less than what you owe if they believe that they will take a bigger loss by foreclosing (legal fees and lower bids at auction).

For more information about the Short Sale, go to E Z Home Ownership Realty, LLC

Be Wary Of Scams:

Scam artists follow the headlines, and know there are homeowners falling behind in their mortgage payments or at risk for foreclosure. Their pitches may sound like a way for you to get out from under, but their intentions are as far away from honorable as they can be. They mean to take your money. Among the predatory scams that have been reported are:

• The foreclosure prevention specialist: The "specialist" really is a phony counselor who charges outrageous fees in exchange for making a few phone calls or completing some paperwork that a homeowner could easily do for himself. None of the actions results in saving the home. This scam gives homeowners a false sense of hope, delays them from seeking qualified help, and exposes their personal financial information to a fraudster.
• The lease/buy back: Homeowners are deceived into signing over the deed to their home to a scam artist who tells them they will be able to remain in the house as a renter and eventually buy it back. Usually, the terms of this scheme are so demanding that the buy-back becomes impossible, the homeowner gets evicted, and the "rescuer" walks off with most or all of the equity.
• The bait-and-switch: Homeowners think they are signing documents to bring the mortgage current. Instead, they are signing over the deed to their home. Homeowners usually don't know they've been scammed until they get an eviction notice.

the Cashflow Coach