Make Money and Build Wealth With Ephren Taylor The Social Capitalist

What Private Placement Involves

If there is one thing that all small business will have to face up to during the course of their entire existence is that there will be a need to pour some cash into it at various points in time. This can be for various reasons that range from the need to boost sales, expand operations into new markets, or merely to sustain the growth of the business.

 

While there are undoubtedly many sources of funding available to small business owners, every one of them will naturally have their inherent limitations and requirements. Commercial bank loans for example are often meant for businesses that have been around for a number of years and have managed to show a steady profit growth. Growing companies would do well therefore, to look into the many benefits that are offered by private placements.

 

Private placement or private investment capital, is defined as money that is invested in a company, typically in the form of stocks and bonds. These usually come from private investors, and does not necessarily have to be registered with the Securities Exchange Commission.

 

According to reports published by Thompson Financial, more than $416 billion was issued in the form of private placements in the year 2002 alone. As impressive as this figure sounds, most of those dollars were actually derived from pension funds, investment pools, banks and insurance companies, all of which amount to just a little more than 2,000 deals. Nevertheless, private placement remains a viable option for the small business owner however, and is often less costly and easier to implement than taking your company public.

 

Benefits of Private Placement

One of the main benefits of a private placement is that it allows for a higher degree of flexibility with regard to the amount of financing you can achieve, which can range from $100 thousand to $10-20 million, attainable with combinations of debt, equity, or debt and equity capital.

 

In addition, many investors are typically more patient than venture capitalists, and they will often be quite content to seek a 10% to 20% return on their investments over a longer term, typically 5 to 10 years.

 

You will also incur much lower costs with a private placement than you would if you were to approach venture capitalists or if you were to sell your stock to the public as an Initial Public Offering or IPO.

 

Finally, a private placement is a much quicker form of raising money than the traditional venture capital markets.

 

Where does one find Private Placements?

The funds from private placements typically come from accredited investors as defined by the SEC Rule 501, Regulation D. The requirements are as follows:

 

• The      individual must earn 200k per year.
• The      household must have a combined income of $300K per year or have a net      worth of more than $1M.

 

With the current limited supply of capital in the stock market today, the private investor market is a feasible alternative for investors as well as small businesses. A private placement therefore offers an attractive form of business financing without the limitations inherent in taking a company public and giving up control.

Hedge Fund Investing: What It Is

While it is really not that difficult for a person to begin hedge fund investing, such a move does entail a significant investment in terms of time, as well as reliable and accurate advice from professionally trained and licensed hedge fund consultants in order to ensure that you can avoid common mistakes or over-concentration in one type or overly similar investment portfolios. Before you go on reading, keep in mind that this article is not meant to be a definitive financial guide, nor is it an implicit or explicit offering of services, but rather a way to de-mystify the entire process involved in hedge fund investing and hedge funds work.

 

A hedge fund is defined as a private and largely unregulated pool of capital, by which its managers can purchase or sell any assets, take a financial risk on falling as well as rising assets, and participate in the profits that will be earned from money that is invested. First created in 1949 by sociologist, author, and financial journalist, Alfred W. Jones, hedge funds typically charge a performance as well as a management fee, and they are typically offered only to qualified investors.

 

Interestingly enough, there has been an increase in hedge fund activity in the public securities markets over the past few years, and it now accounts for as much as 10% of all fixed-income security transactions in the United States, 35% of activities with regard to derivatives with investment-grade ratings, 55% of the total trading volume for bonds in emerging markets, and 30% of equity trades. Furthermore, hedge funds are also quite prominent in certain specialty markets, among them trading within derivatives with high-yield ratings and distressed debt.

 

If you are interested in investing in hedge funds yourself, it would be helpful to keep the following tips in mind:

 

1. You will have to be an accredited investor.

2. You would do well to learn as much as you can about hedge funds. Good sources of information and advice are hedge fund related blogs, news articles, white papers, books that are written about hedge funds and articles that are written by hedge fund managers. You may also want to speak to people who work with hedge funds personally or that have invested in hedge funds previously.

3. Make sure that you work only with licensed hedge fund consultants and hedge fund brokers. Use the information that you have picked up in the course of your research and work with someone who you can trust and will not steer you towards certain types of funds that may not necessarily be the right option for you.

4. Keep your financial advisor updated on your day-to-day activities throughout the duration of your investment in Hedge Funds.

6. Never rely on a single strategy. Keep in close contact with your financial advisors and have them help you develop a portfolio of investments that will best suit your specific financial position and goals.

7. Finally, keep informed and current on the various aspects of the industry.

The Basics of Hard Money Loans

A hard money loan is defined as an asset-based loan in which a borrower receives funds in exchange for the value of a piece of real estate. Hard money loans usually come with much higher interest rates than normal commercial or residential property loans, and these are rarely, if ever, issued by commercial banks or other lending institutions.

 

Hard money loans are similar to bridge loans in that they usually have similar requirements for lending and cost to the borrower. The main difference between the two is that bridge loans typically refer to commercial property or investment property that does not qualify for traditional financing by virtue of being in a state of transition. Hard money loans on the other hand typically refer to asset-based loans with a high interest rates that are sought out because of a financial situation. The most common reasons for availing of a hard money loan are arrears on existing mortgages, or a situation wherein bankruptcy and foreclosure proceedings are impending.

 

Hard money mortgages are typically applied for by private investors in their immediate areas. The credit score of the borrower is usually not an important consideration, as the loan is based on the value of the property that is put up as collateral. The usual ratio of the maximum loan to value is calculated at 65-70%. This means that if the property is valued at $100,000, the lender would be able to borrow $65,000-70,000 against it. This relatively low loan to value ratio or LTV provides additional security for the lender, since they can foreclose on the property in the event of non-payment by the borrower.

 

In determining the LTV, the value of the property is defined as the current purchase price. This amount is what a lender could expect to earn from the sale of the property in the event of a loan default, necessitating a sale of the property in a one- to four-month period. This is in contrast to the market value appraisal, which assumes a sale in which neither buyer nor seller is in a hurry to sell.

 

Most hard money loans are funded with the lender in the first lien position. What this means is that in the event of a default by the borrower, the lender is the first creditor in line to collect payment. In some cases, a lender will give up this right to the first lien position loan to another lender. This situation is known as a mezzanine loan or second lien.

 

There are certain cases in which the low LVT is not enough to pay off the existing mortgage lender, allowing the hard money lender to assume the first lien position. Because the basis of a hard money loan is a security interest in the property, the lender usually requires a first lien position for payment of the loan. As a result, many hard money lender programs will allow for a Cross Lien on another of the borrowers properties. This cross collateralization of more than one property against a hard money loan is also called a blanket mortgage.

What an IRA entails

For many people, establishing a retirement plan is an important concern. Equally important however is the need to have funds available for various purposes such as college fees or any emergencies that may crop up. It can be quite difficult to keep up with several plans that will address all of these concerns, which is why the passage of a bill by Congress in 1997 that introduced new types of Individual Retirement Accounts or IRA's that can be utilized for savings as well was such welcome news. One of the goals for these new plans was to make it possible for people to use the money for certain expenses such as the purchase of a home or for college costs.

 

These new IRAs actually have a number of clear benefits over traditional IRAs. The older IRAs involved putting some money in your account and deducting it from your taxable income, which resulted in you paying less taxes for that year. This meant that your money increased without any taxes until the time that you take it out. When you do take it out however, you would have had to pay regular income taxes, as well as a 10% penalty if you were under 59 1/2 years old at the time of withdrawal.

 

With the newer IRAs however, there are more options for you to get access to your savings if necessary. One of these is what is known as the "Roth IRA", which allows you to put your money in now just like a traditional IRA. Unlike the old IRA however, a Roth IRA won't allow you to take a tax deduction this year. Furthermore, the money will grow in the account without incurring any taxes.

 

Now here is where the benefit comes in. If the money stays in the account for more than five years and you are more than 59 and ½ years old, you can withdraw this money without paying any additional taxes or penalties. In addition to this, you will also be able to withdraw up to $10,000 in order to pay for a first-time home purchase. And, if you are below 59 and ½ years old and the money stays in the account for more than five years, you will not have to pay any penalties or taxes either.

 

The funds in this account can also be withdrawn for certain college expenses. In these situations, you will not have to pay any penalties, although you will have to pay taxes if you withdraw an amount that is equal to what you put in over the years.

 

There is yet one other option that you can consider, and that is the Education IRA. This IRA is actually a lot like the Roth IRA, except that you can withdraw the money in this account in order to pay for certain college expenses for your children or grandchildren without incurring any penalties or taxes. Roth IRA on the other hand will require you to pay taxes upon withdrawal, if you are under 59 and ½ years old.

The role of an IRA Custodian

An IRA custodian plays a crucial role in any account, although his or her duties with regard to self-directed options are markedly different. Generally speaking, the IRA custodian is tasked with the maintenance of assets and the managing of transactions, as well as keeping records of those transactions.

 

While many custodians typically charge individual fees for every transaction, such as the purchase or the sale of assets, others will charge only a single maintenance fee yearly. It may be more affordable for you to pay a yearly fee, depending of course on the number of trades that you plan to make during the course of a year.

 

Basically however, IRA custodians simply act under the direction of the account holder. Self directed accounts generally give the account holder more investment options. The owner typically makes a few decisions throughout the year with regard to the retirement accounts, which are in effect throughout the year. In addition, trades can be conducted at any time with a self-directed account. So in effect, self-directed IRA custodians will usually have to do more work, which is why they typically charge higher fees.

 

According to current laws, IRA custodians are not allowed to receive "unreasonable compensation" for his or her role in the management of an account. This restriction can be quite confusing however, as the law does not define this in specific terms. Some IRA custodians actually charge fees for services such as annual record keeping and even quarterly "asset administration" fees. These fees have a way of adding up quickly, so you would do well to shop around before settling on any one IRA custodian.

 

In addition, you should keep in mind that there are rules and regulations that you have to follow with regard to certain investment types and prohibited transactions. For example, IRA custodian typically cannot ensure your compliance or even offer legal or tax advice. He or she may offer unbiased educational material however, and may also refer you to certain tax codes when appropriate, but the responsibility of dealing with any legal issues that may arise is ultimately on your shoulders.

 

It would also be helpful to know that the tax status of the account will remain secure if you are careful to avoid certain investment types, such as collectibles and antiques. Investment in many other areas and assets are typically allowed however, with stocks and bonds being some of the more common ones, along with real estate, mortgages, franchises, partnerships and tax liens. Real estate is in fact quite a popular option nowadays.

 

While an IRA custodian is not legally allowed to suggest good deals to a client, he or she is allowed to put you in touch with advisors who can do so. You will typically need a mortgage company, attorney, accountant, or any other professional advisor in order to do so however. With regard to real estate, some investors can even help you find good deals and provide additional education that is so crucial to new investors.

Investing In Community Development

The implementation of the Community Reinvestment Act or CRA regulation has caused many bankers and lending institutions to explore their options with regard to being able to apply for qualified investments. A very real concern is whether or not certain investments will qualify under the new CRA. For some banks, the issue has been the source of a fair bit of confusion, with many of the guidelines being somewhat hard to understand. And while others have no trouble coming to terms with the legal requirements of investing in real estate properties for community development, there still remains the issue of finding deals that banks will want to invest in.

 

To address these concerns, many bankers have begun to explore their own investment initiatives that meet the specific needs of their communities and at the same time ensure a strong performance.

 

Investing in community development actually serves many purposes, not the least of which is bringing life back into neighborhoods that have fallen on hard times. On the part of banks, community development can result in numerous social benefits, help them earn substantial returns on their investments, and allow them to meet their CRA goals. All of these goals can be achieved through redevelopment bonds, equity investments in community banks, loan pool certificates, and grants that are given to local nonprofits organizations. It is important to realize however that meeting CRA goals will require a thorough understanding of what types of real estate opportunities qualify as investments.

 

The primary purpose of qualified investments has to be community development. This means that the funds invested funds must be used for affordable housing for low- and moderate-income buyers, community services that are specifically geared towards these buyers, to promote economic development by way of the financing of small businesses, or the revitalization of specific areas.

 

If the majority of the funds or the beneficiaries of a certain investment fits into any one of the above requirements, then that investment can be said to conform to the definition of community development. If on the other hand there is no clear cut majority, an investment will have to meet any one of the following requirements in order to qualify as community development:

 

• The      explicit intention of the investment is for community development
• The      investment is specifically designed for community development purposes
• It is      clear that the particular investment will meet the stated community      development goals.

 

It is important to note that it is the responsibility of each institution to show that a particular investment is a legal investment, membership share, grant, or deposit, and that community development is its primary goal. Upon the establishment of the investment’s primary purpose, this will be examined in order to determine their level of innovation and complexity. This is done by way of qualitative information, which in many cases involves comparing qualified investments to the other investments in a specific institution’s portfolio and to the types of investments made by similar institutions. One of the most important considerations in this regard is the type of investments that are most commonly seen in a specific bank’s assessment area.

Investment Property: What It Can Do For You

For many years now, investment property has been on the rise as a popular means to attaining wealth by many people all over the world. The purchase of a home is of course one of the first major investments that many people make, with the purchase of a second piece of property being the next. In fact, this move is often undertaken before the purchase of shares and other assets are even considered.

 

Before we go into the various aspects of investment property, a definition of the term would be in order. Investment property is the term used to refer to a piece of property that is not meant to be occupied by the owner, and is instead purchased with the specific goal of generating profit by way of rental income and/or the gaining of capital.

 

While we mentioned earlier in the article that most people’s first real estate investment is usually their own home, this does not always have to be the case. In fact, buying a modestly sized house or apartment in an affordable area to rent out can be a good way to build up some funds in order to purchase your own home eventually, in the specific place where you want to reside. More and more people all over the world are going for this option nowadays by renting property in a more affordable area, and purchasing and renting out another piece of property in a more expensive area. Other people are even expanding their investments into non-residential properties by way of property trusts.

 

Investing in property sensibly actually has a number of other benefits, not the least of which is that property tends to be less prone to market fluctuations than shares (although this is not always the case), and they are generally regarded as safe options when other assets decrease in value. Property investments also have great potential to generate capital growth and increase the value of your assets, and there is of course the rental income to consider as well. In addition, there are certain tax benefits that you can realize from negative gearing.

 

Just like any other investment however, investment property does not come with any solid guarantees. The prices of property does go up and down from time to time, and it can be quite a challenge to find good renters who will pay their bills on time and take good care of the property.

 

Furthermore, there is a need for people who are going into investment property to be thoroughly aware of interest rates and how higher rates will impact on their expected returns. They also have to make sure that the return or yield from their investment property measures up favorably compared to the returns that they would have achieved if they had invested in shares, for instance.

 

Of course, this is not to say that everyone should be directly involved in investment property. You can for example, go into partnership with other real estate investors and combine your assets into managed funds that will focus on property.

The Individual Retirement Account

An Individual Retirement Account or IRA is defined as a retirement plan that allows the depositor to enjoy certain tax advantages for savings that are intended for retirement.

 

The individual retirement account and other related plans were actually created as amendments to the Internal Revenue Code of 1954, that was in turn established by the Employee Retirement Income Security Act of 1974. This act enacted the Internal Revenue Code sections 219 and 408 pertaining to IRAs.

 

There are actually a few different types of IRAs, with some of them being employer-provided and other self-provided plans. These types are:

 

• Roth      IRA, which are contributions that are made with after-tax assets.      Transactions under these Individual Retirement Accounts have no effect on      taxes, and withdrawals are typically free of taxes as well.
• Traditional      IRAs are contributions that are tax-deductible, and are often described as      "money deposited before tax" or "contributions made with      pre-tax assets"). All of the transactions and earnings within these      types of Individual Retirement Account have no effect on taxes, and any      withdrawals made at the time of retirement are taxed as income.
• SEP      IRA are provisions that allow employers, small business owners or self-employed      individuals to make contributions for a retirement plan into a Traditional      IRA that is in the employee's name, as opposed to a pension fund that is      in the company's name.
• SIMPLE      IRA is a simplified employee pension plan that will allow both the      employer and the employee to make contributions, making it quite similar      to a 401(k) plan, although with lower limits on contribution limits and      simpler and more affordable administration.
• Self-Directed      IRA is a self-directed IRA that allows the holder of the account to make      investments on behalf of the retirement plan.

 

All of the above examples of IRAs are fairly similar with regard to tax laws except for Roth IRAs. In addition, SEP IRAs and SIMPLE IRAs have rules that are a lot like those for qualified plans that govern how contributions can be made and what types of employees are qualified to sign up.

 

In terms of funding, IRAs can only be funded with cash or the equivalent of cash. The act of transferring of any other type of asset into IRAs is prohibited by law and will entail disqualification of the fund from tax benefits. However, rollovers, transfers, and conversions between IRAs and other types of retirement accounts can and often does include other types of assets.

 

Keep in mind that the maximum contribution for an IRA in 2006 and 2007 was 100% of the individual’s earned income or $4,000 (whichever is less), for people under 50 years old. People who are over this age can contribute up to 100% of their earned income or $5,000 (whichever is less). In 2008, the limits were raised to $5,000 and $6,000 respectively. This limit is imposed on Roth IRAs, traditional IRAs, or any combination of the two, although you are not allowed to cannot put more than $5,000 into your Roth and traditional IRA combined, with $6,000 being the limit for people aged 50 years old and above.

Business Inside an IRA

Anyone who has a small business in operation has probably given some thought to invest additional funds into it at some time or another. One of the sources of funding that has proven to be popular in recent years is a simple IRA as managed by a financial institution. As many financial advisers will tell you, there are many ways by which you could set up a business inside an IRA. Nevertheless there are certain rules and restrictions that will apply, which you would do well to be aware of before making any important decisions.

 

Keep in mind that the stock of an S corp cannot be held by a self-directed IRA, although it is possible for a self-directed IRA to grant a loan to an S corp. However, if the loan in question is to be made to an S corp or any other business entity wherein you or a "disqualified person"–as defined by IRS regulations–own 50% or more in, this would constitute a "prohibited transaction." The penalty for such transactions can be quite severe and the IRS would probably consider the IRA fully distributed and therefore impose taxes on the full value of the IRA.

 

One way that you can circumvent this potential problem is by having the self-directed IRA make out a loan to a person that you trust, who will then make the loan to your S corp. keep in mind that this person should not fit into the category of “disqualified person” as defined by the IRS. This restriction includes–but is not limited to–spouses, ancestors, lineal descendants and spouses of lineal descendants.

 

While the above workaround is proven to work under certain circumstances, keep in mind that there is a fair amount of risk involved as well. If the transaction is handled improperly for example, or if the transaction could be construed as involving indirect benefits or conflicts of interest, it could well be deemed a prohibited transaction by the authorities, whether or not the person that applied for the loan was a disqualified person.

 

Another other option that is available to you then if you want to establish a business inside an IRA is to apply for an exemption that will allow your self-directed IRA to make loans to your S corp. This is something that not too many advisors know about, but there is in fact a provision existent in the Internal Revenue Code that gives the Secretary of Labor the authority to grant exemptions to certain prohibited transactions.

 

In any case, you would do well to seek out the advice and assistance of a professional tax or financial advisor who is thoroughly knowledgeable with the various aspects of this plan. Keep in mind that with a self-directed IRA, the time that it will take to set up a business depends on the particular financial institution or brokerage firm. In some cases, the entire process of setting up a self-directed IRA and having the funds moved from the old account into the new one can take anywhere from 4 to 6 weeks.

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