Guidant Financial Group Blog

Forbes magazine recently published its top 10 Real Estate Markets. Investors may want to take notice of some of these markets—near or far—as many of them provide opportunities for substantial returns. The top 10 are:

1. Washington D.C.
2. London
3. New York City
4. Tokyo
5. Shanghai
6. San Francisco
7. Los Angeles
8. Paris
9. Houston
10. Singapore

Washington D.C. ranks number one because burgeoning government programs are expected to draw large numbers of workers to the city and surrounding areas, creating higher demand for all types of residential real estate and a boom in service industries.

New York's density was widely believed to guard the metropolis from major downturns in residential property sales, but some neighborhoods have seen a three-quarter drop in sales activity, according to the article. This drop could bring bargains in the near future as the local market recovers from the financial crisis that has stricken Wall Street.

Like most California cities, San Francisco and Los Angeles have seen significant drops in housing prices. The former is also on the verge of a major commercial property glut, which could present bargains for long-term investors, while L.A. is seeing more sales activity in recent months, hinting that the market may be at least nearing its bottom.

Lastly among American cities, Houston is one of only a handful that saw prices rise overall from 2006 to 2009, and this growth is expected to continue because of the city's low business costs, which could attract corporate relocations and thus new residents.

As fears continue to rise concerning the fate of the stock market, more and more IRA holders are considering self-directed IRAs over traditional investments. These real estate markets may provide the right opportunities for investors to weather recent downturns and see returns much larger than they might have expected even in the boom years.

Read the article, which focuses on the D.C. property market, on the Forbes website here.

In a tight lending market, financing a small business or franchise can seem impossible. Entrepreneurs are finding that it often requires multiple sources of capital to get a project running. The search can be a time-consuming and costly effort, and sometimes a particular kind of financing just isn't right for a project. Here is a short list of sources of capital that entrepreneurs should consider:

Self financing through one's retirement assets: This is first on our list for obvious reasons (it's our business, after all), but it's also the only option on this list that does not result in debt. Too often, entrepreneurs and franchisees believe that only their cash assets and home equity can be tapped for a business, but one's own retirement funds can be used through 401(k) small business financing. It's already the account holder's money, so there is no debt and no outside investor. One only needs the right account to access these funds.

Borrowing from banks: Borrowing from a bank is still the most well-known financing option, but franchisees and business owners know that many banks are hesitant to make any loans to new projects in the current economy and that over time these loans have a huge cost. Despite this, banks are convenient for mid-sized to large loans.

Borrowing from private lenders: Private lending or peer-to-peer lending (P2P lending) is an option for those who need smaller loans or just a little more than is available through other means of financing. These loans usually cap at about $25,000 on the high end, and they can come with high interest rates, though these rates are occasionally better than what the bank might offer. As always, it depends on the project and the lender. NuWire Investor published a summary of some of the P2P lending platforms out there. You may want to check it out.

Getting SBA loans: SBA loans are guaranteed in part by the Small Business Administration, which improves the odds of getting approval. However, they require much more paperwork than other loans and the turn-around time can be three months or longer. Furthermore, new business are less likely to be approved than established ones. For larger projects, the time investment to apply may be worthwhile. One can also find short-term SBA microloans for amounts not exceeding $35,000.

Finding investors: Whether friends and family, partners, accredited angel investors, venture capitalists or even potential clients and customers, this can be the cheapest option in the short-term, but matters are usually less straightforward. Personal relationships, ownership and management issues and end agreements need to be carefully considered. Truly independent entrepreneurs may find some of these complications to be more trouble than they are worth, and loans and self-financing remain a better option.

Business owners can also lower costs by leasing equipment rather than buying an office full at the outset. There are many financing options available to entrepreneurs and franchisees and utilizing a combination of them can make all the difference in getting a project to take flight.

Small business owners whose businesses performed at a loss in 2008 may be eligible to receive emergency refunds within weeks of President-elect Obama’s inauguration. According to a recent BusinessWeek article, business owners who can report a net operating loss (NOL) for the last year will be able to offset income from the business for the last five years instead of the standard two. This could qualify owners of formerly profitable businesses to receive substantial refunds. The Section 179 first-year expensing deduction limit is nearly doubling from $133,000 to $250,000, and these benefits combined could help a struggling business reinvigorate its operations within a few months.

This is great news for all business owners who have seen profits fall and credit tighten in the last year. The increased Section 179 deduction is also great for business and franchise owners who are just starting out. For some, of course, the refunds alone may not suffice to fully recapitalize a business. If that is the case, 401(k) small business financing may provide the additional funds to stabilize a business for better results in the New Year.

The number of loan-guarantees by the Small Business Administration (SBA) reportedly shrunk 57% during the last quarter (ending Dec 31) last year—YIKES!

In addition, a survey of loan officers by the Federal Reserve shows that 75% of banks have tightened their underwriting requirements and 90% were charging more for loans. Again ... YIKES!

If fewer entrepreneurs are being approved for business capital and the cost of obtaining that loan is more expensive, then how can a new business be capitalized?

Consider investing in yourself! There is a way (through Guidant’s 401(k) Small Business Financing vehicle) to invest in a business with your IRA or 401(k) without penalties. In addition, there are no underwriting requirements—you either have the money, or you don’t. Also, you can use your IRA and 401(k) funds as the down payment for a loan if you want to buy a bigger business! Lastly, you get to invest in something that you own, control and can build.

How have your stock market investments performed? If you are like most Americans, then probably not too well. A small business may be an interesting investment alternative worth considering!

If your IRA or 401(k) is heavily invested in the stock market, 2008 is likely a year you’d like to forget. The market’s performance is particularly painful for those individuals who are taking Required Mandatory Distributions (RMD). IRA holders, who have reached the age 70.5, are required by RMDs to withdraw a percentage of funds from their accounts. Unfortunately, most individuals take this distribution in November or December. In most cases this is not of great concern—HOWEVER in 2007 the market was strong. In 2008, not so much. With most accounts losing money, some individuals are still taking withdrawals based on last year’s value.

THE GOOD NEWS: Congress has taken some positive action in reference to RMDs! The President signed the Worker, Retiree and Employer Recovery Act of 2008 on Dec. 23. Section 201 of the Act temporarily suspends Required Minimum Distributions (RMDs) from IRAs and qualified plans for 2009. RMDs will be required again in 2010 unless Congress renews the suspension. It enables retirees the opportunity to reduce their taxable income for 2009 should they determine that doing so is to their advantage and helps retirees and IRA owners avoid having to liquidate investments in a down market. Without the suspension, they could be forced to sell—most likely at a steep loss due to the stock market downturn—investments in their accounts in order to take the distribution, or face a 50 percent tax penalty on the amount that should have been distributed.

Fixed-rates for mortgages are the lowest that they have been in several decades, according to an article on MSNBC.com. No one can be certain of how long these low rates will last, how much further they might fall and how much they will rise after reaching the bottom. It's also not a given that aspiring homeowners will actually be able to get financing, especially if they have less-than-perfect credit scores.

One thing is slightly clearer: These rates are more incentive for homebuyers to take advantage of the low prices already being offered in this buyers' market. This could raise demand significantly, and as demand rises and inventory diminishes, home values will also be on the rise.

For property investors, these low rates are good news for the longterm. It will still be a while before most markets—especially truly glutted markets—see prices rebound very much, and financing is well out of reach for anyone who has experienced foreclosure. Many people still need to rent at present, which guarantees that many investment properties will generate cashflow. Individuals who are considering investing in property can find great deals on homes and may see prices appreciating sooner than later if these lower mortgage rates do compel more people to gradually start buying.

Even with these low-rates, investors who have sufficient retirement funds to buy property may want to consider using a self-directed IRA as a debt-free means of financing. After all, no interest is still better than low-interest if the property is to be an investment. There are housing markets that seem to already be at bottom, and today's low mortgage rates may give these markets the final push toward appreciating home values in the coming year.

While working with our 401(k) small business financing clients, we have found that the one part of the process (aside from selecting the business itself) that holds things up the most is the location selection.

As they say, it's all about "location, location, location!"

But, do you know what makes a good location? Obviously foot-traffic is important for retail, just as accessability and parking is important for the food industry - but have you thought about where you can find the best employees? What about where the best tax rates are?

A new article in BusinessWeek hilights some great websites dedicated to helping businesses choose the right place to call "open," as well as some great tips for what kinds of questions you should ask yourself before moving forward on any one location (see Where to Locate your Business).

Some great resources for you may be:

- www.ZoomProspector.com
- www.city-data.com
- www.siteselectionnetwork.com

There's no harm in studying-up early in the process. This way you'll be prepared when the time comes to sign that lease ... and you won't have any hold-ups once you do get that financing secured!

Guidant Financial Group's offices are closed today but we will return tomorrow. We wish you all a happy New Year!