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Video #1 of the movement that may change your financial future forever!

In today world of economic turmoil it is becoming increasingly important to look at all aspects of your financial planning. The changes that have taken place of the last two years have been earth shattering for many seniors who thought they had everything covered. If you or anyone you know is having a hard time financially or you have seen savings and or retirement funds disappearing you need to think about the future.

There is one thing that we know for sure even with the best of plans is that change will come for everyone. There is no such thing as the perfect plan, but there things we can do to avoid some of the unforeseen issues that can affect each and every senior no matter how good the plan. Over the last few years many of financial planners, CPA’s and Elder Attorney’s are looking towards the Reverse Mortgage as one of the key components of planning for the future.

Just because a senior does a Reverse Mortgage; does not mean they cannot plan for the future, with all of the options that are available under the program. In planning you need to have a direction with security features built into the plan. By utilizing the proceeds of the RM in certain ways such as having a portion of the monies stay in the Credit Line which grows over time with interest at a ½ percent over the interest charged on the balance.

Here are some examples you can use as a guide

Tenure: This means receiving an amount of money every month for the rest of your life! (It is calculated on living 100 years.)
Term: This is for a specific amount of time usually 10 years
Lump Sum: This is where you take all of the proceeds at closing
Credit Line: This is setting up an equity line of credit that earns interest that you can draw from when needed. (Key here is that no interest is charged on this money until you actual take it out)

The most important part to remember is that any of these terms can be changed at anytime except if you take all the money at one time. Of course there would be none left.

Here is where planning comes into to play, you have a specific amount of money at closing of the Reverse Mortgage, now you need to determine what level of security you are looking for and when you may need funds. Are you planning on giving money to your children/grandchildren, are you looking to purchase long term care insurance for the future. These of course are only a few issues that you may be faced with down the road, of course there are also day to day issues like property tax increases, insurance, medicines and food just to name a few.

The fact is a Reverse Mortgage is a edge against deflation as well as inflation simply because it allows you to have funds that are totally protected and insured should you ever need them. Your home was something that you purchased a longtime ago in most cases at a reduced price, you paid for it over time with a mortgage which you were charged interest for however many years you took. You also received tax benefits along the way with interest deductions and tax deduction. At the time you purchased your home in many cases you did not even think that you home was being and invest in time.

Let’s look at this closely.

You purchase your home in 1965 at let’s say $30,000

Over 30 years you made payments on the home every month and paid it off in 1995

If you had and interest rate of 5% you paid to the mortgage company over that time $28,000.00 in interest alone, which means you paid $58,000 for you home. Now over the years your home had what is called appreciation so let’s assume over 30 years it averaged 5% per year. Now remember this appreciation is compounded every year. So let’s look at this.

$30,000 purchase price

5 % appreciation over 30 years $129,658.27 this is an average.

With the markets over the years your home today could be worth $200,000

So now look at the Reverse Mortgage for a person at age 65 with zero owed on there home.

$200,000 appraised value

65 Years of Age

$127,000 in funds available before cost of the loan, net proceeds would be estimated at $114,000 tax free money.

So what this means is that if you had purchased your home and had received the national average of 5% appreciation without all of the crazy numbers over the last decade you would be able to draw out every dime you paid for your home including all the interest you paid over the years. Plus you will have the profits that you would only get if you sold tax free and never have to pay anyone for the ret of your lives. This is truly a hedge against inflation and deflation.Think Reverse!

Part 3 of 3, end of 2007 business comedy review … funny money business comedy finance satire 2007 iphone awesome cool sweet party

First, I would like to thank everyone for their interest in the first part of this article – “The Fast Track to Your Financial Freedom (Part 1) – Leveraging your Money”.

Now, you may now be thinking that this whole idea of leverage is great and earning $81,000 on a $20,000 investment over seven years would be terrific. The problem with this is “IT’S STILL TOO SLOW.” We can still do much better. Besides leverage, we need to add the principle of VELOCITY. Here’s how it works:

In the first year, the investor takes the $20,000 and buys the same $200,000 home as previously illustrated in The Fast Track to Financial Freedom (Part 1) – Leveraging your Money. The home still appreciates at 5% each year and the rents on the home cover the expenses of owning the homes, including the mortgage payment.

After two years, this home will be worth approximately $220,000. Instead of letting that appreciation sit and accumulate, the investor borrows it out and buys another $200,000 home. How is this possible? Quite simply, the investor puts a second mortgage on the home in an amount equal to the appreciation. The rent is raised just enough to cover the interest on this additional loan. (Most landlords raise the rent at least every two years.)

The second home also is rented out and appreciates at 5% per year. Every two years, the appreciation for each home the investor owns is borrowed out and used to buy new homes.

By doing this, at the end of seven years the investor will own eight homes with a total value of $2,020,000 and equity of $273,000. This is compared to equity of only $101,000 if the investor only bought the first home and compared to equity of $39,000 if the investor had relied on the compound interest from mutual funds. This is what we call VELOCITY. Velocity of money is simply the process of continually moving money into new and better investments.

At a net equity of $273,000 the investor has more than thirteen times their original investment in seven years. This is so much better than compound interest that most people have a difficult time believing it.

When I do this demonstration in a seminar, there is always at least one person who will not believe it is possible. At that point, I ask the audience if anyone has ever put the concepts of leverage and velocity into practice. Invariably, someone raises their hand and explains that in actual practice, it has worked much faster than what I have demonstrated, because of the very conservative nature of this demonstration.

You probably would be thrilled with this level of returns. Our clients at ProVision would be disappointed in a value of ONLY $2 million at the end of seven years from a $20,000 investment. Why? Because, this return does not factor in any of the tax benefits from investing. Tax benefits, when properly taken, CAN DOUBLE YOUR INVESTMENT. Here’s how.

Let’s go back to our example. Suppose our investor is in a combined federal and state tax bracket of 35%. Suppose also that our investor has excellent tax advisors, like those at ProVision, who understand the MAGIC OF DEPRECIATION.

Depreciation, quite simply, is a non-cash deduction each year for a portion of the purchase price of the rental real estate. This deduction will put a considerable amount of money back into the pocket of the investor.

Suppose that the investor takes the tax savings from the depreciation and uses it to purchase additional single-family homes. And just like the other homes, every two years, the investor borrows out the appreciation and buys another homes. At 10% down and 5% annual appreciation, with just the original $20,000 investment and the tax savings from depreciation, at the end of seven years, the investor will own the following:

- 16 homes with a total value of $4,200,000

- Net equity of $540,000, or roughly double the net equity of $273,000 without the tax benefits

- Annual appreciation after the seven years of $210,000 per year

- All with a single initial investment of $20,000

So let’s recap. If the investor had listened to a typical financial advisor, the investor would have invested $20,000 in a mutual fund and, with a very good market, would have $39,000 at the end of seven years. On the other hand, if the investor had used the concepts of leverage and velocity, including tax benefits, the investor would have $540,000 at the end of seven years and a portfolio worth over $4 million.

What’s amazing about the concepts of leverage and velocity is that they are not limited to real estate. They work equally well in business and in the stock market. But if these concepts are so great, why doesn’t’ the average investor use them? The answer is simply, KNOWLEDGE AND EFFORT.

There is one final factor – EFFORT. It is easy to give your money to an investment advisor and it is easy for the advisor to put the money in a mutual fund. It is not nearly as easy to gain the knowledge necessary to put the concepts of leverage and velocity to work in real estate, business or the stock market. It takes effort, both from the investor AND from the investor’s advisors.

Warmest Regards,

Tom

Funny Money last quarter ‘07 business comedy review, part 2 of 3 … funny money business comedy finance satire 2007 awesome cool sweet party

The further you go in life, the more you’re starting to feel like buying a house certainly provides serious tax shelter advantages.

Rare thinking people like you already know that the ability to borrow by taking advantage of the equity in your home is an important one. If you live in the United States, buying a house should be a priority of your personal financial plan because of the opportunity to shelter income from taxes.

Tip number one already discussed how expenses related to home ownership can be tax deductible. Two large deductions of owing a home are the mortgage interest deduction and the property tax deduction. It is easy to look at these deductions as the government helping to pay for the cost of owing or buying a house.

Remember the second tax benefit of owning a home is the tax-free sale. Individuals may be able to exclude up to $250,000 from tax liability due to the sale of a house or up to $500,000 if a married couple. By meeting the ownership test and the use test, it is possible to enjoy such an incredible benefit. The tax-free sale is in and of itself sufficient cause to add buying a house to the smart financial plan.

This third tip is amazing. The next benefit you can enjoy from buying a house is the ability to borrow tax-free against home equity without having to sell your house.

Accordingly, when your house appreciates in value you create equity in your home over and above the original loan amount for the mortgage. Over the years you also pay down the mortgage, freeing up more equity. You are then free to borrow against that equity.

Here is an example. Suppose you bought your home for $200,000 using a mortgage of $160,000. Since you purchased, the house has appreciated to $350,000 while you have paid down the balance to $150,000. Subject to a lender’s appraisal of course, you may have as much as $200,000 that you can borrow.

Also notice there are several ways to do this that you should discuss with your financial advisers and mortgage lender. You may choose to refinance the entire amount of the mortgage balance plus cash out, taking advantage of any additional equity you want to borrow against. During times of declining rates, you might even end up with a lower monthly payment.

Along these same lines there is another method to access your equity yet not have to take it in one lump sum. Ask your mortgage lender about applying for a line of credit. The difference between the value of your home and the amount you owe, the equity, becomes the basis for the mortgage.

Without a doubt a line of credit loan has several advantages. It is easy to see the benefit to having money on stand-by but without a payment until used. Any costs to establish a line of credit are usually small versus refinancing which usually includes origination fees and closing costs.

Finally, a line of credit, sometimes called an LOC, can be repaid easily but you still have the option of accessing the LOC again without a new application being formally submitted. The costs are also significantly lower versus a personal loan or credit card.

Other methods include applying for a 2nd mortgage sometimes referred to as an equity loan or home improvement loan. A favorite is the 15 year fixed rate although do not assume this as there are many variations. Rely on yourself to find out the terms of the 2nd mortgage such as payments, lump sums of money due later on in the loan, and whether the interest rate is fixed for life.

This advice applies to any mortgage whether it for buying a house, refinancing, or obtaining a line of credit, or equity 2nd.

Even though using a home in the manner described here may result in tax savings, consider the cost to refinancing. Banks are in the business of making money as are all mortgage lenders. Whether you decide to refinance your 1st mortgage entirely, apply for a line of credit, or acquire a 2nd mortgage, you must be sure you understand completely what closing costs will be incurred, what is the period for the loan to be repaid, and what interest rate you will receive. In addition you must know if the interest rate and payment can adjust and if so, how much and how often.

Even though you are near the end of this article, pay attention to what could become a big headache. When getting any type of mortgage for buying a house or refinancing, you must inquire if the home loan is going to have a pre-payment penalty.

Lenders use pre-payment penalties to assure a profit in the first few years either by collecting the borrower’s payment or imposing a penalty for premature payoff. It usually lasts from one to three years. Whether or not you accept a pre-payment penalty as part of the terms of your mortgage may or may not be important to you. However it is important that you are aware of it especially if you have plans to pay the loan off early.

Regarding tax implications, it is always recommended that you consult a qualified financial adviser.

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