February 18, 2018
Home Authors Posts by Kye



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real estate investing

Chances are good that if you follow HomeTuneUp, you have already invested in real estate in at least one way: buying your own home.  While many people purchase a house for the sake of having a place they can call their own, many others do it at least in part because they see it as an investment in their future.  If they can renovate and improve the house, they can turn around and sell it at a higher value.

But not a lot of consumers have an opportunity to take their real estate investments further than that.  But all of that is changing.  Crowdfunding real estate is on the rise.

What is Real Estate Crowdfunding?

Real estate crowdfunding is a somewhat unusual concept, perhaps best explained through this article on Forbes.  To sum up, for a very long time, real estate investing was restricted to individuals who 1-had a huge amount of money to invest, and 2-had the right connections through their professional and personal networks to locate a project and get involved.

With crowdfunding, that has changed.  There used to be strict legal restrictions on who could invest in real estate, but the SEC opened the doors for non-accredited investors in October of 2015.  Ever since then, companies have been springing up to help everyday people invest in real estate.

With real estate crowdfunding, you no longer need $100,000+ to pour into an investment deal.  You can get started with as little as $1,000.

Why invest in real estate?  If you have purchased your own home, you already know the answer to that, at least in part.  As a hard asset, real estate is inherently valuable.  There is also a scarcity advantage; there is only so much land on the planet.

On top of that, if you invest in commercial real estate, you can enjoy ongoing cash flow from rent.

You may have some familiarity with real estate investment trusts, or REITs.  These have been around since the 1960s and were created with the goal of allowing average consumers in the US to invest in commercial real estate properties, but they posed a number of drawbacks.  REITs typically are high in fees and hard to understand.

With real estate crowdfunding online, fees have never been lower—and transparency has never been higher.

Some other unique advantages of real estate crowdfunding include:

  • Numerous different projects.  You will find incredibly diverse options, so no matter what you are interested in, there should be opportunities in real estate which are an ideal fit for your needs.
  • You get a chance to work with project developers.  This means you have input in the structures you invest in building.

Are there any drawbacks?  Investing in real estate always carries some degree of risk, even if you do it through traditional avenues.  While real estate is a hard asset, values can crash in a recession.  Liquidity remains low with crowdfunding (always a problem in real estate), and the risk of default from developers is elevated compared to traditional real estate investments.

For this reason, it is extremely important to think hard before investing in real estate, even if you are only going to be putting down a small sum of money.  This is also why it is vital to read real estate crowdfunding reviews.  That way you can be sure you are going through a reputable company and that you will get access to the best investments and the lowest fees.  If you’re not sure where to start, Fundrise is swiftly becoming one of the top sites for real estate crowdfunding investments.  Read a Fundrise review to learn more.

Investing in real estate used to be a complex process, and you needed a lot of money and connections to do it.  But now you can invest quickly, easily, and securely in residential and commercial real estate projects around the globe.  With real estate crowdfunding, you can enjoy the stability and steady cash flow of investing in hard assets, even if you only have $1,000 to start out!

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401k and your home

Is your retirement account looking a little paltry?  You are not the only one—but it is a serious issue.  The Financial Times reports that around 45% of working-age households have literally zero retirement savings, in part because of the growing pension crisis.  Pensions are no longer the norm, but many workers have no retirement accounts at all, whether we are talking about a 401(k) or IRA.

If you do have a 401(k) which is doing well, count yourself lucky.  How much should you have in your 401(k)?  The answer is quite simple (though perhaps not very satisfying), and that is, “as much as possible.”  Of course, that is not easy to do if you are juggling a mortgage and other household expenses.

But what happens if you change employers?  These days that is increasingly common, which is one of the reasons that many employees no longer have retirement accounts at all.  It is complicated setting up a 401(k), and there are so many pitfalls and fees that many people simply shy away from them altogether.  If you do open 401(k) plans at each of your employers, you can end up with a lot of legacy 401(k) plans as you jump from job to job.  Keeping track of these can be quite difficult.

This is one of the reasons you might want to consider rolling over your 401(k) into an IRA.  But should you roll over 401(k) to IRA?  That really depends on your situation.  Let’s take a quick look at the pros and cons so you can understand the benefits and drawbacks to doing so.

Advantages of Rolling Over a 401(k)

  • Your accounts will be consolidated.  This can be extremely helpful if you now have a number of legacy 401(k) accounts.  If you lose track of them or forget about them, you will have no idea what is going on with your finances, and you will find them hard to manage.  If you roll them all over into an IRA, you will have everything in one place.
  • You will have more versatile investment options.  Companies limit the investment options in their 401(k) plans to keep costs down.  With an IRA, you have more diverse investment choices.
  • Because IRA plans are more efficient, they also tend to be more cost effective.  401(k) plans often have high fees, and there is nothing you can do about that since you only have a finite number of plans to choose from.  But with an IRA, you can pick a plan which you can afford.
  • Distribution options for IRAs are more flexible than they are for 401(k) plans.  This can be a benefit if you die before you can tap into your 401(k) accounts.  The person inheriting your IRA accounts will find it easier to withdraw the money.  These additional withdrawal options can benefit you directly as well.
  • You have full control over your IRA—unlike your 401(k) plan.  What if the company tanks?  What will happen to your retirement savings?  With a 401(k) plan, you cannot be certain.  But if you have an IRA, your money is safe since you are in charge of it.

Disadvantages of Rolling Over a 401(k)

  • The typical 401(k) plan has a lower minimum balance requirement than the average IRA.  This means that it is easier to get started with a 401(k) than an IRA.  You may have a hard time setting up an IRA at the start of your career.
  • If you need to borrow from your employer’s retirement fund, you will only be able to do that with a 401(k).
  • Despite the fact that an IRA will give you more investment options than a 401(k), you may still not find the investments that you want.
  • If your finances should take a nosedive and you end up in dire straits, you will have a hard time protecting an IRA from creditors looking to seize your money.  Declaring bankruptcy is the only real way around this.  But if you have a 401(k), you have a lot more legal protection.

Regardless of what you decide to do, the key to saving for retirement is to make sure that the decision you make is right for you.  So do more research and carefully weigh the advantages and disadvantages of rolling over your 401(k).  If you make the right choice, it can help you to cut back on fees and make more through your investments.  This will not only help you to save for retirement, but will also help you to enjoy a higher standard of living in the meantime.

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home budget

Even though the recession is behind us, this is a tough time to be a homeowner.  Mortgage rates are still on the rise, and another financial crisis may be on the horizon.  It can be hard to make ends meet.  You may find yourself wondering how you will ever be able to afford to make improvements to your home, pay off your mortgage in full, and retire in comfort.

You are not the only person in this position however. A lot of Millennials are struggling to get by on low and middle incomes while living in an economy with high prices not just for housing, but for everything else. Older generations are struggling as well.

Thankfully there are new products out there geared at consumers just like you. One of those products is called a “robo-advisor.”

Just what is a robo-advisor, and how can it help you to improve your home budget? A robo-advisor is a software program which provides you with custom investing advice. With it, you can quickly and easily set up low-risk, reliable investments.

Investing is an area where a lot of young homeowners have a hard time. You may barely be able to afford your mortgage and other basic bills as it is. If you are setting aside money for savings, you may only have a few hundred or thousand dollars.

There was a time when traditional pension plans were the norm, and your company would take on investment risk on your behalf. But those plans are becoming more and more a remnant of a past era. Now it is up to you to assume financial risk for your retirement accounts.

This is such an intimidating prospect that a lot of Millennial homeowners simply defer on investing entirely. They save as much as they can, but they still do not have a lot, and are unlikely to meet their retirement goals. In the meantime, they fall behind on home improvement projects and ongoing maintenance costs.

A robo-advisor offers an alternative for those who want to get started investing and earning toward retirement. Instead of paying high fees to talk to a human advisor, you pay very low fees to use a suite of online services. If you do need advice from a human being, someone is there to assist you if you call in (depending on the company you use).

You do not need tens of thousands of dollars or more to get started either.  You can get started investing with as little as $100 a month.  Actually, Betterment (one of the top robo-advisors) lets you start with even less—but you will qualify for the lowest fees if you can contribute at least $100 monthly.  Over at Wealthfront (another of the most popular robo-advisors—check out this Wealthfront review for more info), you can start with just $500.

Benefits of investing with a robo-advisor include:

• Get started investing with just a few clicks
• Monitor your funds on an ongoing basis
• Get personalized advice on your retirement accounts and general finances
• Make small, affordable contributions if you are on a tight budget
• Steer clear of high fees
• Start investing sooner so you can compound more money

Naturally you are not going to want to withdraw from your retirement accounts if you can avoid it; so you should try and put off your home improvement projects for a while if it would mean drawing from your investments. Still, in some cases you may find that simply replacing your existing advisor (who may charge you high fees) with a robo-advisor can save you enough money to tackle some of those projects sooner rather than later.

How do you choose a robo-advisor?  While there are many choices out there, two of the most well-respected and established advisors are Wealthfront and Betterment.  Click to read robo-advisor reviews on these and other top companies.

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piggy bank

You’ve got the house and the white picket fence and the family and the job … but you cannot help the nagging suspicion that you are still not really on target for the life that you dream of.  True, you are doing okay now, but are you really on track for the life you want in 20 years or 30?  Will you be able to retire when you want?  Will you be able to retire at all?

If you are nervous about retirement, you are not the only one.  One in three Americans has nothing saved for retirement, which puts us on the brink of a looming crisis.  This problem is particularly prevalent among Millennials.

You may be wondering where you stand with respect to others your age—as well as those who are younger and older than you.

Compare Your Net Worth

So what is the average net worth by age?  Well, click on the link and you will see it is pretty low.  While the graph is pretty easy to understand, you might be a little confused by how the data is presented.  Basically, if your income fits within a certain percentile for your age group, that means you are doing better than that percentage of your age group.

So for example, if you are in the age group 35-44 and you have around $35,000, you are in the 50th percentile, and you also are doing better than 50% of your peers.  Consider that is the figure for net worth.  That includes not just savings and investments, but housing, vehicles, and everything else.  It is also a household figure, not an individual figure.  Individual savings are of course even lower.

If you look at the numbers for older generations, you will see that nobody is doing that great.  Most Americans are way behind on the savings they need to retire comfortably.

So that raises the next question: How much do you need to set aside each year to actually meet your retirement goals?  How much should you contribute to your 401(k)?  Well, that totally depends on your lifestyle.  Some people need a lot more money to retire than others, so you will have to do the math yourself.

But ultimately, the rule is pretty simple: you need to be contributing as much as you possibly can.  With lower wagers and higher living expenses (not to mention poor job security), it has become very challenging to “make it” in today’s world.  The deck is stacked against you, so you need to be on top of things and pushing as hard as you can to save up money and earn on your investments.

So are you behind on your retirement savings?  Probably.  If you are one of the few who are actually on track or ahead of the game, count yourself as very lucky.  If you are behind, try not to get too down on yourself; your situation is typical, and contrary to popular belief, you do not control every aspect of your destiny.  A lot of us will suffer low wages and lost employment through no fault of our own.

Stay focused on what you can actually do to save money, and remember that millions are in the same boat you are.  If you are earning even a middle income, chances are good you are already way ahead of most of your peers.

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There are many different reasons why people invest in homes. For some, buying a home essentially is an investment—it is primarily a financial decision. For others, purchasing a home serves a different purpose altogether; it is a decision made for psychological reasons.

Whether you plan to buy a house and turn around and resell it or you want to live in it for the rest of your life and pass it down to your children, owning a home is more expensive than you may realize. Here are 5 common budgeting errors and oversights made by new homeowners.

1. Choosing to look at your primary residence as part of your real estate portfolio.

A lot of people choose to look at their primary residence as a part of their real estate portfolio. There is a mix of pros and cons for doing this, and there are differing schools of thought.

So why do we feel it is a mistake? Well, first of all, you probably will be putting roughly a third of your income toward your mortgage payments. On top of that, you will likely have a 20% down payment. But that means that if you count your primary residence as part of your portfolio, it is going to devour most of the space in that portfolio. This makes it hard to diversify.

On top of that, what if you want to rebalance your portfolio, as is inevitable over time? You can shift a lot of assets around, but only the more liquid ones. A house is anything but liquid. You would need to sell it even to get a proper valuation. And you may not have any interest in selling it anyway. You cannot just arbitrarily take some of the equity in it and move it elsewhere.

Additionally, the psychological value of your home isn’t something which you can easily assign a quantitative weight to.  Many people who look at their primary residence primarily as an investment miss out on the joy of having an actual home.  Wealthfront, a company we recommend (more on them in just a bit), has a great article on this topic here.

2. Choosing the wrong type of interest rate.

Another common budgeting mistake which homebuyers make is selecting the wrong type of interest rate given their situation. So instead of choosing a fixed rate when they ought to, they choose an adjustable rate, or vice versa.

How do you figure out which type of interest rate makes sense given your circumstances? It helps to ask yourself how long you plan to stay in the home. If you will be there only temporarily, an adjustable interest rate which is very low for the first few years may be a great option. But if you plan to stay in the home over a very long time period, you may want to avoid that kind of unpredictability and choose a safer fixed interest rate. Otherwise you could find yourself in a predicament where your rates are ballooning out of control at some point down the road. This happened to tons of people during the recession.

3. Forgetting the numerous other monthly costs associated with owning a home.

It is easy to think that after your down payment, you will have nothing to worry about each month with regard to home-related expenses other than your mortgage. But this is far from being the case. You will have many other housing-related costs to shoulder, including:

• Interest on your mortgage
• Property taxes
• Homeowner’s insurance
• Additional hazard insurance
• Homeowner’s association fees (and other related fees)
• Utilities (water, power, trash, etc.)
• Maintenance costs
• Repair costs
• Furnishings, etc.

All of these costs can add up very quickly, and many new homeowners are unprepared for them. Some of them will exist even long after the entire mortgage is paid off, like utilities and property taxes.

Yes, before you ask, there are some tax deductions which can save you money as a homeowner. But those deductions will barely dent the interest you pay on the mortgage, let alone make up for the other costs of home ownership.

4. Failing to keep a monthly budget which incorporates all expenses.

Do you have a monthly budget which accounts not just for your home-related expenses, but all of the costs of living?  If not, you need one.  Freddie Mac offers a monthly budget worksheet.

5. Not defining a plan for long-term savings goals.

Finally, you also need to make sure that you have a plan for your long-term financial future. It is easy to get lost in the dream of owning a home and forget that you have other goals and dreams you need to reach for as well.

If you are feeling overwhelmed trying to plan your financial future, we recommend using a robo-advisor like Wealthfront or Betterment.  Read a comparison of Betterment vs. Wealthfront

There are many financial pitfalls you can easily stumble into if you are not careful planning your expenses as a new homeowner, but with a robo-advisor on your side and some extra thought and planning, you can pave the way to a bright future in your new home!