Accounting News and Notes

Your retirement savings plan offers you several choices when you decide to change jobs or when you retire.  A distribution is a payout of realized savings and earnings from a 401(k) or other retirement plan. In general, you must begin taking distributions from your account by April 1 of the year following the year in which you turn 70 1/2.  When you leave a company your distribution options may include:  keeping your money in your plan, enacting a direct rollover, or taking a cash distribution. Each option has different consequences.

If you keep your money in your plan, you will no longer be able to make contributions, but you will still maintain control over the investments and your money will continue to grow tax deferred. You could rollover to your new employer’s qualified retirement account without physically receiving any funds.

Similarly, in a direct rollover, you could move your money directly to an IRA. This option allows for you to benefit from the advise of a financial advisor.  A flurry of new investment products, the emergence of foreign investing, the shift from company-funded pension plans to employee-driven retirement plans and uncertainty about Social Security has all contributed to the increased need for qualified financial advice. No matter what your level of investment experience or sophistication, you may benefit from developing a relationship with a financial advisor.  A qualified financial advisor is trained to analyze your personal financial situation and prepare a program designed to help you meet your financial goals and objectives. It might be helpful to think of your financial advisor as a kind of doctor for your financial health.  If you are under 59 at the time of separation from service, a direct rollover may be a good option, as it avoids the penalties associated with a cash distribution from a qualified plan.

Those tempted to take a cash distribution from a qualified plan should consider the taxes and penalties that apply to this type of distribution. You must pay taxes on the money you receive at then-current rates, and if you are under age 59 at the time of separation from service, you may also have to pay a 10% penalty, making this option viable only if the funds are immediately necessary.

Whatever option you choose you will want to think carefully before making any decisions about the money in your retirement plan, as some choices may mean you have to pay more in income taxes on your distribution.  Speak with a tax advisor before picking a distribution election.                            ___________________________________________________________________

                           Securities offered through Harbor Financial Services, LLC Member NASD/SIPC,  Clearing Raymond James & Associates  Robin Grier Financial Services, Inc is not an affiliate or Subsidiary of   Harbor Financial Services, LLC

     Ask any investor about risk and you’ll probably hear that it’s something the investor wants to avoid or at least keep to a minimum.  Like it or not, investment risk is an essential part of any investment decision.  Properly managed, risk can be turned to the investor’s advantage.  What is risk?  The answer depends on whom you ask.  If you ask an investor, particularly an inexperienced investor, you’ll probably hear that risk means that you might permanently lose a portion of the money you invest. 

    To many people, investing (particularly in stocks) is akin to gambling.  These people know the risks associated with playing the lottery, betting on a horse race or dropping a coin in a slot machine.  When you gamble, there’s a small chance you’ll win big and a big chance you’ll lose everything.  That may be true in Las Vegas , but experienced investors know that comparing the investment markets to a gambling casino is a simplistic and unrealistic view of the risks involved in making an investment decision.

    To understand investment risk, investors must accept certain fundamental truths of investing.  First, there is no such thing as a risk-free investment.  Second, investors seeking greater investment rewards must be willing to accept greater risk.  Conversely, if an investor is unwilling to accept a given level of risk, then reward expectations should also be lowered.   Third, the risks an investor faces can vary depending on how long an investor has to achieve his or her investment goals.  Finally, while risk cannot be eliminated, it can be managed through careful planning and following a disciplined investment process.

     Let’s look at risk from different perspectives.  One form of risk that everyone understands is “principal risk.”  That’s the risk that you are exposed to when you purchase an investment (a stock, bond or parcel of real estate) that may suffer a permanent decline in value.  For example, if XYZ Corporation goes bankrupt, its bondholders may only receive pennies on the dollar for their interest-bearing bonds and stockholders may see their investment go to zero.  The risk that an investment could suffer a significant loss in value due to the changing financial fortunes of the underlying enterprise is a risk of virtually all investments.  Only United States government securities and those backed by the federal government (like federally insured certificates of deposit) are presumed to be free of this risk of loss.  We assume that our government will always be able to pay its bills.

     Another risk investors face is “volatility.”  That’s the chance that on any given day, the financial markets might value your investment at a price greater or smaller than it did yesterday.  With some investments, the highs are higher, the lows are lower and the journey between the two is faster.  Common stock prices of large U.S. corporations tend to be more volatile than the prices of short-term government bonds.  Small stocks tend to be more volatile than large stocks.  Some foreign markets are more volatile than the U.S. market.  Almost all investments are subject to the risk of volatility.  Even rock-solid U.S. government bonds and notes fluctuate in value when interest rates move. 

     A risk that many investors ignore is inflation or purchasing power risk.  Inflation is a threat to the long-term health of an investment portfolio.  The relatively low (as compared to the double digit rates of the late ’70s and early ’80s) inflation rates of the recent past are actually in line with the long-term average rates over the last six decades or more.  Over the period of 1926 through today, the price of a dollar’s worth of goods and services has risen eight-fold, which averages out to about 3 percent per year.  Inflation of “only” 3 percent has a corrosive effect on purchasing power over shorter periods as well.  For example, over 25 years (the length of retirement for many people) inflation will rob over half of the purchasing power of every dollar if it continues at “only” 3 percent. 

     The real art of building a successful investment portfolio is balancing and managing risk.  One technique to manage risk is through diversification.  Diversification simply means spreading your assets over many different investments so that no one investment is too large a portion of the whole.  Another technique is to use the differing characteristics of investments to offset some of the risks associated with other investments. 

     For example, short-term government bonds and certificates of deposit offer no risk of principal loss and little or no price volatility.  However, over the long-term they have not been able to keep up with inflation after taxes are deducted.  Keep in mind that it’s not what you make but what you keep that matters.  Further, it’s not just how many dollars you have left after taxes, but what those dollars will buy that matters.

     Common stocks have, historically, provided the growth needed to overcome inflation.  The “problem” has been that short-term price volatility scares some inexperienced investors.  Blending stocks together with bonds and other investments, in just the right proportions, is essential to building a portfolio that minimizes the many risks of investing.

     This process of managing risk, diversifying investments and balancing portfolios is called “asset allocation.”  It is, quite simply, the single most important part of the investment decision-making process.  It is also a process that requires a careful examination of investor goals, investment experience, other sources of income, tax situations and a variety of other factors.  Asset allocation decisions should be made carefully and should not be based on “cookie cutter,” “one size fits all” approaches. 

 Securities offered through Harbor Financial Services, LLC Member NASD/SIPC,

 Clearing Raymond James & Associates, Robin Grier Financial Services, Inc is not an affiliate or Subsidiary of Harbor Financial Services, LLC

Unveiling the Mystery Behind Net Lease Commercial Real Estate Investing 

 As I speak with potential investors about the possibilities of investing in commercial real estate, one of the biggest misunderstandings is the net lease.  Net leases are commercial real estate investments in which the tenant takes more responsibility for the building, while giving the landlord less management responsibilities.  In this article, we will cover the three main types of net lease properties – modified net, triple net (NNN), and double net (NN) – and how each one can be beneficial to different types of investors and their investment criteria. 

Modified Net 

In a standard modified net lease, the tenant pays all utilities, maintenance on the building, repairs, and insurance.  However, the landlord is still responsible for property taxes and everything else. 

The benefit of this type of lease is that the tenant has a vested interest in the property and is more likely to take care of the property.  With the tenant paying their own maintenance, repairs, and insurance, they are sure to take care of the property for future usage.  In contrast to a property without a modified net lease, the tenant may only be responsible for basic liability insurance and utilities.  Therefore, a modified lease gives the landlord a tenant who cares more about the building and less management responsibilities. 

The down side of this type of lease is that there is still management responsibilities associated with this lease structure.  For example, the landlord still must ensure that property taxes are paid and is generally responsible for the roof and structure.  Therefore, if there is a leak in the roof, guess who the tenant is calling?   

The modified lease is better than a traditional commercial lease but is on the lower end of the spectrum when it comes to net leases.  Investors who may be interested in this type of lease are not as concerned with management responsibilities, but like the idea of having a tenant who pays for maintenance, repairs, and insurance.   

Triple Net (NNN) 

Triple net lease or NNN lease tends to be the industry norm and most sought out. In a standard triple net lease there are usually limitations on capital expenses.  However, the tenant is responsible for property expenses that include property taxes, property insurance, and maintenance. 

The benefit to this type of lease is that the landlord has virtually no responsibility as it relates to managing and taking care of the property.  Many times, triple net or NNN lease properties are guaranteed by corporate credit tenants such as Walgreen, CVS, Burger King, McDonalds, Borders Bookstore, etc., who guarantee the rent, including taxes, maintenance, and insurance, for the entire period of the lease. 

The downside to this type of lease is minimal, but can have a great impact on the purchase price of the asset (property) in question.  Essentially, if the tenant that is guaranteeing the lease is not a credit tenant, then they have a higher risk of defaulting on the lease. A credit tenant is usually a public or private entity that has a strong credit rating by the S&P.  In situations where there is no credit tenant, it is prudent for the investor to purchase the property with a higher cap rate, based upon market standards at that time.  Thereby, offsetting risk associated with buying a NNN property guaranteed by a non-credit tenant.  For example, if a franchisee is leasing the property, generally the corporation does not guarantee the lease.  If that franchisee has financial problems and must close, the likelihood of the investor being able to obtain the rents that are due for the remainder of the lease, drastically diminish.

The NNN lease or triple net lease investment is ideal for an out of state investor, or investor who does not want the hassles of property management.  Other than paying debt service, the investor can look forward to receiving a fixed rent check each month according to the lease that was signed. 

Net Net or Double Net (NN) 

Another net lease is the Net Net or Double Net lease (NN).  These leases are very similar to NNN leases; however, the landlord is generally responsible for structural damage such as the roof and/or bearing walls. 

The benefit to this type of lease is the same with a NNN lease.  Again, the management duties are drastically diminished in this type of lease situation.   

Except for the roof and structural damage issues, this type of lease shares the same downside as the NNN lease.  In addition, many double net leases are actually completed by franchisees of major brands that are able to pay for much of what a NNN tenant pays for, however, does not want the liability of roof and structural damage. 

A double net lease is also an ideal investment for an out of state investor, or investor who does not want the hassles of property management.  The investor will receive a fixed rent check each month according to the lease that was signed and pay all debt service associated with the lease.

Not All NNN Leases Are Created Equal 

I must mention that investors need to be fully aware of the type of investment they are looking into.  For example, many commercial brokers will market a property as a triple net or NNN lease property; however, the property may actually be a NN or double net lease.  Please be sure and read the fine print of the lease and have your attorney look it over. 

Finally, net lease investments are the safest and most risk-averse commercial real estate investment in the market place, due to their fixed rents, tenant responsibility, and mostly corporate guarantees.  However, be sure you contact a professional commercial real estate investment advisor, who can walk you through the entire process of acquisition and financing of your net lease investment.  In addition, remember that commercial brokers are professional sales people; therefore, it would be wise for potential net lease investors to retain the services of a professional commercial real estate investment advisor to work on their behalf.  Usually, there is no cost to the buyer to retain the services of a commercial real estate investment advisor who can act on their behalf with a fiduciary responsibility to their client, just like an attorney who would represent them in court.  Thereby, ensuring the investor gets the best deal possible utilizing the investment advisors strong negotiating skills, and decreasing the hassles associated with buying net lease commercial investment property.   

Mark Santiago is an Investment Advisor with RE/MAX Suburban Atlanta. He specializes in providing turnkey real estate investment portfolios for Doctors, Lawyers, Dentists, and other professionals who have accumulated wealth in their IRA or 401k, or other cash bearing accounts and would like to retire within the next 10-20 years. You can also read his blog at: http://AeonInvesting.wordpress.com Mr. Santiago can be reached at his office: 770-325-1847

As you approach retirement, several fears usually begin to pop-up in your mind.

1. What will I do when I retire?
2. What will my lifestyle be like?
3. Can I afford to retire?

If those questions are plaguing you as you get ready to retire, please know that you are not alone. I speak with individuals all of the time who are contemplating their retirement without knowing the answers to these questions.

As an investment advisor, I am often times able to help people formulate strategies to invest what they do have today, so they have a safe and secure tomorrow.

I specialize in a different type of asset. In fact, most people don’t really think of it as a retirement solution.

Let me give you an example. Let’s say that you had $500,000 in your IRA. Because it’s more than likely invested in the stock market, the IRA could be worth $500,000 today and worth $10,000 tomorrow. “Impossible”, you say.

Would You Put Your Retirement Money Into A Slot Machine?

I know of a gentleman who worked for a Fortune 1000 company. He had invested his IRA in that same company. About five years ago his IRA was worth around $400,000. When he got ready to retire recently, that same IRA was now worth $12,000.

It’s a shame that it happened to that man, but, what about you and your retirement? Do you have your money tied up in assets that fluctuate and make you no better off than gambling at a casino?

My specialty is Real Estate, specifically commercial cash-flowing real estate. I know what you’re thinking, “Real estate is risky business.” It can be, but not always.

NNN Lease = Turnkey Investing

I want to introduce you to a simple solution called the triple net lease or the NNN lease. This type of real estate investment product has been around for years. They are commercial properties backed by corporate leases by companies such as Walgreens, CVS, and Burger King.

Here’s how they work: Let’s say that a national drugstore chain has built a building for one of its stores. Instead of keeping all of their cash in the building, they complete what’s called a “sale-lease back.” Essentially, they will sell the building to an investor and then “lease back” the property from the investor. The drugstore chain will then guarantee the lease, usually for twenty-five years.

What makes this lease even better is that the drugstore chain will pay the property taxes, insurance, and all maintenance on the property. So each month, all you get is a check in the mail to pay your debt service (unless you paid cash).

Imagine How Powerful This Strategy Could Be For Your Retirement.

Another great point about these types of investments is that you can usually get a non-recourse loan on the property. A non-recourse loan is backed by the credit of the tenant, not the investor. Therefore, title is held in an LLC that the investor owns, but does not personally guarantee.

Now, to make this investment even better, let’s say that you are planning to retire in about ten years. If you have a investment advisor who is able to negotiate the purchase price down, then you can get a loan that is paid off in ten years. Although your cash flow will be minimal for the next ten years, your loan will be paid in full.

You Own The Building Free and Clear!

Imagine waking up in ten years and you now own a $4 million dollar building free and clear. Of course, you now have cash flows of around $300,000 per year that you can live on or reinvest. In addition, you have $4 million in equity from the building that you could either sell or hold onto.

This strategy is just one of many that investors use to secure their future. It’s really not that complicated, but I would recommend that you hire a professional investment advisor who could help you with the acquisition and negotiation of the building, as well as the financing to obtain it.

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Mark Santiago is an Investment Advisor with RE/MAX Suburban Atlanta. He specializes in providing turnkey real estate investment portfolios for Doctors, Lawyers, Dentists, and other professionals who have accumulated wealth in their IRA or 401k, or other cash bearing accounts.

You can also read his blog at: http://AeonInvesting.wordpress.com Mr. Santiago can be reached at his office: 770-325-1847

Atlanta CPA on How to Utilize Investments to Your Best Advantage

Especially in light of these economic times being a wise steward and investor are even more critical. It is prudent to keep in mind when investing the difference between short and long-term capital gain rates as often the difference between paying a lesser amount and a larger amount can be determined on the holding period of stock.

Investment Period. Investments held for more than one year are taxed at long term capital gain rates vs. higher ordinary income tax rates for individuals. Also there are some stock investments which pay out dividends, which though does create a cash flow, will require the taxpayer/investor to pay taxes thereon in the year that dividends are received.

Tax Treatment. Also it is prudent to learn if any of the dividends will be determined by tax law standards to be “qualified” which will result in a lesser tax rate being used than ordinary dividends. Also depending on your tax bracket it might be wise to consider investing in investments which accrue and pay tax exempt interest. If you have net long-term capital gains the maximum tax rate, under present law, is 15%.

Loss Deduction. If you have a net long-term capital loss you can deduct these monies reducing your taxable income by up to $3,000 per year with any excess being able to be rolled forward. If you have a large tax loss, as many of us do, it is a good opportunity to consider selling a stock that has risen to value to legally shelter the gain with the Carry-forward.

Investment Sensitive. However great caution should be used here as I would never recommend selling a good stock, only one that you feel has peaked,  relative to other investment properties. Also it is wise to keep in mind that the taxable/deductible component of a stock is only determined when a stock is sold, and is not based upon solely the decline in value.

When planning for one’s long term future I suggest that you retain a wise and experienced Certified Financial Planner (CFP) and a Certified Public Accountant (CPA) who can work together as a team to plan for your long term financial needs.

John Dillard is a Christian Speaker/Author and Certified Public Accountant (All Rights Reserved). To See how he takes Christ along with him to work visit http://www.hiscpa.com/ (An Atlanta  CPA firm) and for his latest book Overcoming Life’s 9/11’s: Job’s Journey and to learn about his ministry visit http://www.john-dillard.com/ To contact John Dillard CPA (Atlanta Christian Author/Speaker) today call 770. 814.9304 proudly serving Duluth, GA, Gwinnett County and Beyond.

“Dare to Attempt Something so Great for the Kingdom of God that it is doomed to failure, lest Christ be in it!” What, then, shall we say in response to this? If God is for us, who can be against us? Romans 8:31

Why are these verses here? Learn how HIS CPA became a Christian Accounting firm visit http://www.hiscpa.com/christian-CPA.html