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Is Property Investment a Good Idea?

Property is a popular long term investment for many individuals with a little extra money to splash around. However, the matter of whether it is a good idea or not is one that is up for debate because there are numerous hidden costs and considerations that need to be taken into account before the decision is made.

Property is a relatively sound investment, provided that purchasing and administration is managed in the correct manner. The stability of the property market is not as dependent on the strength of the economy as many other investments. While, for example, individuals may lose their life savings overnight on the stock market, this is unlikely if one’s savings are tied up in property. Indeed, the popularity of property investment is largely due to downturns in the global stock market which have forced people to seek alternative investment opportunities.

However, property investment is not, as many people mistakenly think, an opportunity to make a quick buck. While this is occasionally possible if the market is fluctuating at exactly the right moment, purchasing a property usually needs to be a long term commitment in order to get a good return on investment. For those not prepared to hang onto their properties, investment in this area is perhaps not such a great idea. For those who are, property investment is a good idea, provided that it is gone about in the right way.

Sensible Property Investment

While property investment can be incredibly rewarding, there are a number of factors that property investors have to keep in mind to stay afloat. Firstly, it is important to draw up a comprehensive budget that takes all your costs into account. The purpose of this is to make allowances for the nasty surprise payments that are often associated with purchasing property. This will also allow you to better decide what you can afford. It is also important that buyers do not make assumptions regarding their purchase and seek professional assistance should they be in any doubt.

Because investors are going to own their properties in the medium to long term, it is important that they pay for themselves to some degree. In order to ensure that this is possible, potential owners need to have a clear idea about the purpose of the property before they sign on the dotted line.

There are four ways that an investment property can be used to generate a regular income:

Buying and Reselling: This involves buying a plot or home for a small amount of money, developing or renovating it at minimal cost and then reselling it with the intention of making a profit.

B&B or Guesthouse Development: Turning a property into a business of some sort is another way to generate income from it. Guesthouses and Bed and Breakfasts are popular options. This however, requires both time and further financial input from the investor.

Holiday Letting: Properties in desirable areas can be bought for the sole purpose of holiday letting. In this scenario, property is leased for a large daily or weekly rate to holiday makers who are seeking short term leases.

Long Term Leasing: With a long term lease, letting rates are lower, but the income is guaranteed, and it is easy to screen tenants.

Starting small is also important. While it may be tempting to invest everything you own in an enormous development, it is necessary to learn the tools of the trade before plunging in head first. This will ensure that if anything were to go wrong, the loss to the investor would not be that great. By starting small, investors can begin to understand the ins and outs of managing property and get better at it before risking more. In this game, experience counts for a lot.

Investing in property is no walk in the park. From the outset, it is a challenge to choose the right property, and manage it in a successful manner. It can however, be an incredibly rewarding experience, with numerous benefits attached. In addition to providing a relatively stable place to stash your money, property investment can be highly profitable if it is gone about in a clever way. For those prepared to make the commitment to a long term investment, buying a property is definitely a good idea.

Selling a Small Business Boom From Dow Crash

The 9/11 attacks caused a crash in the Dow and this past week has seen the next largest crash since that time.

The Dow lost 7% of its value in one day! It gained some back after that but the losses that are suffered can be permanent.

Thousands and thousands of business owners, part of the baby boomers, will need to sell their businesses in one manner or another over the next ten to fifteen years. Many of them must sell in the next two to three years.

The financial markets have lost confidence from the people. The government has felt it necessary to publicly pass bailout legislation that the public really does not like.

What does all of this bad news mean for the owner trying to sell a business?

There are three things that are actually good news for those selling a business: 1. People are laid off during these times. 2. Banks do not have the cash liquidity to finance transactions 3. Buyers will be looking harder at the fundamentals of a potential business buy.

How are those good things? Well, let’s take a look:

In the late eighties and early nineties, the US economy took a tremendous hit. Compaq Computers and other major companies laid off scores of people. One of the consequences was a boom of new companies being formed and business being acquired as these laid off executives decided to own their own businesses. They took severance packages and cashed in retirement plans to obtain the liquidity to invest in either a new business or a business that was for sale.

The impact of these entrepreneurs entering the marketplace was a dramatic growth of small business. Small business creates more jobs than all of the major companies in the United States. The economic boom that followed was fueled in a major manner by the growth and success of these small businesses, not the major companies.

The effect is buyers in the market place, exactly what the business sellers need to make the transition in their business. Yes, the buyers will be driving a hard bargain and looking for value but business that have adopted the six systems of successful businesses will be investments that will sell based on their fundamental cash flow.

Unsecured debt from banks will dry up for the purchase of business due to a lack of liquidity. Even though bank funding will be absent, the new buyers will tap severance money and retirement money to invest.

Banks, for the most part, are actually not a source for funding to buy a business unless the business has assets, like buildings and land or significant hard inventory, that fits the banks’ need for asset based lending. Due to Federal regulation, banks cannot invest in the stock of companies which restricts lending to buy businesses to either unsecured loans or asset based lending. As a result, loans to finance the sale of a business usually do not come from banks.

The combination of the newly unemployed entrepreneurs with severance and retirement funding plus owner financing gives the liquidity needed to sale of many businesses.

Fundamentals of the businesses on the market will be key to buyers. Businesses that are investments with solid cash flow are always good targets. When a business owner has created an investment by having the six necessary systems in place, the business is an investment and not a job for sale. Implementing the six systems of customer attraction, customer engagement, customer service, customer retention, team accountability, and financial reporting will achieve this goal.

The silver lining of the current financial difficulties is a good market for the sale of a small business. To take advantage of that market, a company must implement the necessary systems to have fundamentals that will attract the new entrepreneur buyers that arise from these troubled times.

Why Passive Investing Beats Active Investing

I’m a big proponent of investing passively by maintaining a diversified portfolio of index funds. It definitely takes the fun out of investing, but as far as I’m concerned, taking risks with money that is earmarked for my daughter’s education and our retirement is not meant to be fun anyway. Its serious business.

So what do I mean by passive investing. For me, it means that I don’t stay awake at night thinking (and worrying) of ways I can beat the stock market and make millions of dollars or on the flip side, make sure that I don’t gamble away all my hard earned money.

If you want to hear stories of why trying to beat the market is a waste of time, I would definitely recommend reading the book “Wise Investing made Simple” by Larry Swedroe.

The best definition for Passive Investing I have seen so far is: An investment strategy involving limited ongoing buying and selling actions. Passive investors will purchase investments with the intention of long-term appreciation and limited maintenance.

Investopedia adds to this by saying, Passive Investing is also known as a buy-and-hold or couch potato strategy, passive investing requires good initial research, patience and a well diversified portfolio. Unlike active investors, passive investors buy a security and typically don’t actively attempt to profit from short-term price fluctuations. Passive investors instead rely on their belief that in the long term the investment will be profitable.

Passive investment management makes no attempt to distinguish attractive from unattractive securities, or forecast securities prices, or time markets and market sectors. Passive managers invest in broad sectors of the market, called asset classes or indexes, and, like active investors, want to make a profit, but accept the average returns various asset classes produce. Passive investors make little or no use of the information active investors seek out. Instead, they allocate assets based upon empirical research delineating probable asset class risks and returns, diversify widely within and across asset classes, and maintain allocations long-term through periodic re-balancing of asset classes.

Where as, Active management might best be described as an attempt to apply human intelligence to find “good deals” in the financial markets. Active management is the predominant model for investment strategy today. Active managers try to pick attractive stocks, bonds, mutual funds, time when to move into or out of markets or market sectors, and place leveraged bets on the future direction of securities and markets with options, futures, and other derivatives. Their objective is to make a profit, and, often without intention, to do better than they would have done if they simply accepted average market returns. In pursuing their objectives, active managers search out information they believe to be valuable, and often develop complex or proprietary selection and trading systems. Active management encompasses hundreds of methods, and includes fundamental analysis, technical analysis, and macroeconomic analysis, all having in common an attempt to determine profitable future investment trends.

So, in order to reach your financial goals, slow and steady wins the race! Hopefully, my review of the book “The Quiet Millionaire” written by Brett Wilder, can shed more light on the various aspects of saving and investing wisely.