Some Tips on Investing... 

Diversification

A resident in Alaska, whose home is in Alaska and whose real estate investments are in Alaska is not a diversified real estate investor. All of their eggs are in one basket. Alaska has enjoyed over 15 years of steady growth. The current economic downturn has not affected Alaskan real estate prices to the degree that it has had in the Lower 48. Some markets in the Lower 48 have experienced a 30-60% drop in values. The Alaskan real estate investor who moves some of his/her portfolio into those depressed markets has the potential of diversifying risk and creating greater growth.

Dollar Cost Averaging

An Example: If you bought 100 shares of Apple stock in September ’08 for $170/share, and, when it dropped to $85/share in October you bought 100 more shares, your average cost per share would be $127.50. Your 200 shares would have broken even in May and you would have an $8,600 profit by September ’09 when they hit $170/share.

It can be very hard to hold onto stock that has taken such a drastic hit and even harder to buy more, but if you are willing to hold onto your 100 shares at $170 hoping the market will make you whole again, why not buy the bargain shares at $85 and break even sooner or make a profit when the price does come back up to your $175 entry price?

Now let’s apply this theory to real estate. Say you own a home in Anchorage worth $350,000. Prices in Anchorage are relatively stable. The value of your home is near its highest in history.

In Arizona, Nevada and parts of California, on the other hand, some home values are half of what they were at their peak. You have thought it might be nice to have a vacation or retirement home in a warmer climate. If you were to buy a $350,000 home in Arizona, for example, now available for $175,000, rent it out until you are ready to retire, you have dollar cost averaged your home in Anchorage. You have one house at its peak value; you have a rental home in Arizona at half of its peak value. If Arizona values go up your equity in Arizona reduces your exposure in Anchorage. You have diversified and dollar cost averaged.

All of this may be done through a self-directed IRA and if handled correctly the gain in the value of the Arizona rental could come to you in your retirement tax free.

And if you don’t want the responsibility of a home in another sate, you could invest in income property through a Limited Liability Company which manages the property and delivers income and equity to the investor.

Education Savings Account

In today’s ever-expanding global economy, education is becoming even more important. In order to compete, our children must be given every advantage we can give them. Unlike families from other countries, Americans are often driven by consumption, not savings.

By opening a self-directed Education Savings Account, you can help your child or grandchild be more competitive, and give them an advantage that their friends may never see. Don’t let this opportunity pass you and your loved ones by. Give them the key to a better future and give yourself peace of mind.

Supercharge Your Child’s Education with $189,300

As an added bonus to the Education Savings Account, why not open a self-directed Roth IRA for your child too? With the Roth, you have the option of contributing up to $5,000 each year into a self-directed account that can invest in real estate. The income or return from these investments can be used to pay for your child’s education. This is in addition to the $2,000 you can put in the Educational Savings Account. A feature of the Roth IRA is that your contributions can be withdrawn at any time without penalty or taxes.

In effect, this means that, when your child is ready for college, you could take out all of the $90,000 contributed to the Roth (assuming $5,000 per year for 18 years but not including any account growth), as well as the contributions and the earnings of the Education Savings Account, calculated to be $99,307 (assuming a $2,000 per year contribution for 18 years, compounded at 10%). That’s a total of $189,307, tax-free! If you earn returns higher than 10%, like most of our clients, your Education account and Roth IRA could be worth substantially more.

On top of all this, the accumulated earnings in the Roth would continue to compound tax-free until the child reaches the age of retirement (59 1/2).

There is one more feature of the Roth that may help to pay for your child’s education. You can prematurely take out the income too, without penalties, if the proceeds are used for education. However, you will have to pay income tax on this type of distribution.

The great thing about this plan is that anyone, including the child, can contribute. Contributions don’t have to be from earned income as is the case in other programs. This allows the child to invest birthday money, holiday money, PFD or even money you give them into their own Educations Savings Account which can then be invested in real estate.

These are just a few examples of how and why to consider investing outside the “Anchorage” box.

This is not a solicitation for investment in a specific property or LLC.  We are continually working with individual investors; putting them together with properties and investment opportunities to accomplish their individual needs.  We would like to give you the same opportunity.

We are affiliated with an IRS authorized non-bank trustee/custodian for Individual Retirement Accounts who have over 35 years of experience in the financial services industry.

We have relationships with experts in areas offering opportunities not seen in twenty years.

Could we help you look into diversifying and dollar cost averaging your investment and real estate holdings?

Give us a call and let us schedule a time to get together.