The Investment Scientist

Archive for the ‘Real Estate’ Category

images-16A client I visited shared with me that he is very burdened by his debts. He has a primary mortgage, a secondary mortgage and a personal loan. He asked me whether he should pay off the debts and in what sequence. That’s a fantastic question.

Here are the partial details of his debts (I’ve concealed the amounts).

  1. The primary is a 15 year fixed rate mortgage with a rate of 3%.

  2. The secondary is a 5 year ARM with a current rate of 2.5%.

  3. The personal loan has a rate of 5%.

Here are my recommendations to him.

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images-11A physician client of mine called me the other day and asked my advice as to whether she should evict the tenant currently residing in her condo. This is advice I hate to give. Let me explain.

The tenant is a single mom with two young children, whose estranged husband just stopped paying child support because he is officially unemployed, but the tenant believes he is getting paid under the table.

My heart goes out to this tenant, I would never want her and her children to become homeless. But my head tells me that if my client lets her stay for free, she would most likely wind up staying for free forever and my client’s rental property would become a toxic asset.

So what should I advise my client?

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Retirement Nest EggI met with three prospective clients on my trip to Los Angeles last week. I did a quick financial review with each one of them and gathered some lessons learned as well.

Prospective client A is a physician in his late 60s. He has already reached retirement age but he needs to keep working since he has less than $1mm saved for his retirement.

All that money is in tax deferred accounts, meaning far less than $1mm is available for his retirement. This is NOT retirement security.

Client A is not an extravagant person, so why is he in such dire straits?

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New York Stock Exchange

New York Stock Exchange

The S&P 500 closed the first quarter at a record high. Should that worry investors? The short answer is, No.

When the market was 30% below the high three years ago, I did some research. I categorized all market conditions into:

1. Breaking a new high.

2. Less than 10% below historical high.

3. Between 10% and 20% below historical high.

4. Between 20% and 30% below historical high.

5. Between 30% and 40% below historical high.

6. More than 40% below historical high.

Then I calculated the one year forward returns of the six conditions.

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house for sale

House for sale

Recently, a client called to tell me that he had finally got the big boulder off his back, and it was such a relief for him.

The “big boulder” he referred to was his big house, with a swimming pool and a tennis court. The house had been costing him $100k a year in property taxes and upkeep, more than 50% of my client’s retirement income. No wonder he called it a big boulder on his back.

He bought the house 25 years ago for $2.2mm, and he just sold it for $2.1mm. After all the costs associated with selling the house, he took home $2mm and change.

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house for sale

House for sale

Last week, my wife found another fabulous piece of real estate to invest in. It is a two bedroom/one bath bungalow. It is a 10-minute walk from a metro (subway) station and 15-minute walk from lots of amenities.

It is a short sale; the bank-approved asking price is only $155k.  The land is about 0.3 acres adjacent to a park and is worth more than the entire asking price.

It is a very interesting investment decision for us. Let me list the pros and cons.

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Tax planning tips

[Guest Post By Cal Klausner] Charitable contributions should be timed so as to obtain the maximum tax benefits, either in 2012 or 2013. If a taxpayer plans to make a charitable contribution in 2013, he should consider making it this year instead if speeding up the deduction would produce an overall tax saving, e.g., because the taxpayer will be in a higher marginal tax bracket in 2012 than in 2013.

On the other hand, a taxpayer who expects to be in a higher bracket in 2013 should consider deferring a contribution until that year. This task is more difficult than in prior years because of uncertainty over whether rates will rise next year under the Economic Growth and Tax Relief Reconciliation Act (EGTRRA) sunset.

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Author

Michael Zhuang is principal of MZ Capital, a fee-only independent advisory firm based in Washington, DC. He is also a regular contributor to Morningstar Advisor and Physicians Practice. To explore a long-term wealth advisory relationship, schedule a discovery meeting (phone call) with him.



You may also get his monthly newsletter, or join his Facebook page for regular wealth management insights. Michael's email is info[at]mzcap.com.

Twitter: @mzhuang

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