Wednesday, April 23, 2014

What is Accounting

Often I run into someone and they ask “aren’t you in accounting?” While I am in accounting, which is the methodology and measuring aspect of my work, the profession as a whole is better labeled as ‘accountancy’.

Accountancy is the profession and accounting is the methods by which accountants measure, track and report on financial information so that resource allocation decisions can be made by, well, whoever the decision makers are.

For a small business owner’s personal finances, as an example, I may be measuring the finances of a few people (the family), and reporting the necessary information to the small business owner. In this situation, the decision maker is the small business owner and his decisions involve deciding how much money he has to put toward family necessities.

Generally speaking, there are two main types of accounting. There is financial accounting and there is auditing. Financial accounting typically involves processing of financial information about a business operation where information is recorded, organized, summarized, interpreted and finally communicated.

Auditing, on the other hand, is the process that an independent auditor uses to examine accounting records and financial statements so that he or she can express a professional opinion about the financial records and answer questions about projections.

At the heart of accountancy lies the need to take stock of the day to day state of various sales and expenses. In the modern world when many contracts are partially fulfilled at varying times, bookkeeping is the only way to know where you and your business stand in the greater scheme of things.

If you operate your own small business, you may be able to do just fine with some accounting software. Take a look around for some flowchart templates. These can make monthly financial recording and reporting, dare I say it, fun. Simply enter in the various types of income and expenses, then each subsection updates the appropriate fields. Before you know it you’ve got proof that all bills have been allotted for and you’ve got your bottom line.

If you find you can manage your business finances on your own, then, by all means, stick with the system that you know works for you. If, however, you start running into complications that make it hard for you to see where discrepancies are coming from, it may be time to enlist the services of a professional accountant.

Business Accounting Basics

When beginning a business, you need to determine the method you plan to use for accounting and paying your taxes. The two options are the cash method and the accrual method.

Cash Method

If you are looking for simplicity, the cash method is probably your best accounting choice. Generally, income and deductions can be claimed when payment is actually received or made. This is best shown with an example.

You opened a small business and have to order business cards and office supplies. You receive the products and pay the invoice on October 28, 2013. Under the cash method, I can deduct the cost on my 2013 tax return.

Some businesses are restricted from using the cash method. C corporations may only use the cash method if they have less than $5 million in gross revenues for a particular year. Professional Service Corporations can use the cash method without limit, while farming corporations can due so if gross revenues are less than $25 million. Tax shelters are prohibited from using the cash method.

Accrual Method

The Accrual Method of accounting is a little more complex. Under this method, the focus in on the date the expense is incurred, not paid. Although this may seem a small difference, it can play havoc with your books and piece of mind.

Using the previous example, assume you order business cards and supplies on the December 28, 2013. I receive the products on December 30th, but don’t pay the invoice until January 20, 2014. When can the expense be claimed? It depends on when economic performance occurred.

Generally, economic performance occurs when goods or services are provided to you. In the above example, economic performance would arguably occur when the business cards and stationary were delivered with the invoice on December 30th. Thus, I would be able to deduct the expense for the 2014 tax year.

In Summary

As you can see, the cash method is the easier of the two accounting methods. To determine the best method for your business, speak with your tax professional.

Monday, April 21, 2014

Real Estate Investments

Late night infomercials will try to convince you that investing in real estate is the best way to become a millionaire. The claims are that investors are looking at big returns with no money down. While that is unlikely, it is possible to make money in real estate.

But you have to know that this is simply an investment, and with investments come risk. If you don't know what you are doing, you could lose everything.

Investing in real estate requires planning and preparation. It could be broken into two parts: selecting your investment and exiting your investment.

Selecting Your Investment

Beginning investors should start with smaller projects. For example, Tom has been involved in real estate for over a decade now, and has invested in many commercial and residential properties. He has found that the key to his investments are to purchase real estate in a good location.

Tom began with a simple duplex close to his home, which he later refinanced to buy a four-plex. He painted and made a few changes to the four-plex, and sold it for a seven-plex. He also bought another four-plex. He renovated the units and made minor repairs and sold it for a decent return.

Tom used his experience and knowledge with real estate investments to venture outside of his normal real estate investing routine. Tom began purchasing real estate through an investment strategy referred to as tax lien and tax deed investing. One of Tom’s first tax deed investments was at one of Georgia’s monthly tax deed sales in Chatham County. Tom was able to walk away with the deed to a beach front condo on one of Georgia’s barrier islands for a fraction of its market value.

Tom also discovered that fixer-uppers really work well if you live nearby and can do most of the work yourself. This cuts your expenses considerably. Tom’s experience grew with each investment and learned to be conservative. Don't let the dollar signs rush you into anything you’re not ready for.

Whether you are looking to buy a house, a duplex or an apartment complex, you need to carefully review the property's economics. Are the rents you plan to charge reasonable? Are your expenses correct? Can you live with the cost of the mortgage? What happens when a unit is empty? Do you still have enough income?

You may not want to be a landlord and prefer to buy a house, fix it and flip it. While you can make a lot of money if you are wise, there are still a lot of issues involved. You have to look at the neighborhood, the market and the budget you have for repairs. Do you have enough money to pay the mortgage if the property does not sell quickly? What if you have to go over budget on necessary repairs? What if things are uncovered that devalues the home? What will you do then?

Large cities tend to be better investment areas than small towns because there are more tenants and buyers. Communities on freeways are attractive as investments due to the access to metro areas. Vacation resorts and beach towns are also fairly stable and generally provide a good return on investment.

Exiting Your Investment

Things happen. The economy, interest rates, job opportunities and construction trend impact every real estate investor. You need to watch the trends and keep in touch with local brokers, appraisers, investors and real estate attorneys.

No matter what you are investing in, you need an exit strategy. You need to know when you will sell, if you will take money and pay taxes or complete an IRS 1031 tax deferred exchange. Does your plan include enough money for your retirement? Will you pay off the property or refinance it and use the proceeds to buy another investment? What if the value of the home drops?

A weak economy is something you should watch. You need to know if a depressed market will pull out of it or last. This tells you when to exit. If you can't find buyers when you are ready to sell, what will you do? Can you restructure your mortgage or have it assumed by a buyer. Check out what loan assumption costs are and if financing terms change with an assumption. You should research your financing options before you make any decisions, paying attention to more than just interest rates.

You need to think well into the future. Plan for the best and the worst. If you invest with a friend, what will happen if they need to pull out? Do you have enough money to handle emergencies or will you need to liquidate the real estate?

Your exit strategy is vital in making your decisions for the future. Plan with your goals in mind. The key is to take your time, pick the right property and live with what happens. In the worst case, the market goes away from where you expect and the value of the home goes down -- at least you can have the tenants pay for the mortgage.

Sunday, April 20, 2014

Condo-Tels as an Investment

Have you ever considered owning your own vacation home? Does it sound like an impossible dream? That's what I thought until a couple of years ago then, I bought a beach front condo on Tybee Island, one of Georgia's barrier islands. Tybee Island is a fantastic little island with many well known restaurants, tons of island events throughout the year and plenty of island wide parties and festivals. However, owning your own place in a vacation resort may be easier that you think.

Many individuals imagine owning their own vacation home. But often worry about keeping it, renting it out in the off-season, as well as justifying the expense when it’s simply to be used for 2-3 weeks of the year. These factors prevent many from making their dream a reality. Now a condo hotel, a revolutionary type of vacation home ownership, offers a welcome remedy to each one of these problems.

Also referred to as condo-tels or aparthotels, condo hotels have already been growing in popularity for being an approach to buying a luxurious second residence.

Condo-tel buyers purchase a real condo unit within an upscale hotel or even in a beach resort. The property may function as a full-service hotel, and owners gain access to all amenities, conveniences and services exactly like resort guests.

They obtain a deed to their unit and may use their vacation home whenever they want. When not in staying in the residence, they are able to place their unit into the hotel’s rental system and share in the income it creates. Like most property investments, the owner may also sell his condominium unit anytime and may make money on it’s appreciated worth.

Young professionals, baby boomers and senior citizens alike are only beginning to uncover the benefits of buying a condo-tel unit. They enjoy the hassle-free characteristics of condo hotels as an additional home while a professional management organization handles everything from property maintenance to locating guests to rent their unit. In addition they consider condo hotels a way to diversify their investments.

Condo Hotels Aren’t a Typical Timeshare

As hybrid properties, condominium hotels vary from timeshares in several ways. With timeshares, purchasers just pay for the right to use the property for an arranged amount of time every year, usually just one week. They don’t own the title to the property, and they don't receive any rent income for the days they’re not in property.

Condo-tel owners may use their condos whenever they want all year round, within the rules of the individual development. They obtain a portion of any income their unit yields when they’re not there and the unit is rented out to guests.

Timeshares traditionally decline in worth as time passes, rather than appreciate. While the history of condominium resales is rather limited, they are viewed as an appreciating asset.

Condo-Tels Offer Amenities

How do condo-tels differ from owning a conventional single family home or condominium? Individuals who buy a traditional condominium pay property taxes, insurance and maintenance costs, but typically don’t get access to the amenities.

Condo-tels, however, aren't your standard second residence. They're suites in a resort designed condominium.

The properties often feature four or five star amenities, which range from full-service spas and fitness centers to fully-equipped business centers and fine restaurants. They may include exceptional hotel services such as concierge, valet and room service.

With condo-tels, owners reap the rewards of condominium ownership while enjoying the privileges of a full-service hotel.

Condo-Tel units range between studios and full-size apartments to luxurious penthouses and villas. Prices for these properties range between $250,000 to over one million for top level properties.

Condo-tels Generate Income to Cover Their Expenses

What makes the condo-tel concept so appealing? When owners aren't utilizing their condo-tel unit, they have the choice of placing it into the hotel's rental system. They obtain 60% of the revenue their unit generates with the balance going to the resort operator. The income generated helps offset the expenses of owning a vacation home.

Even though many hotel operators don’t guarantee the rental of the condo, by taking advantage of the hotel's brand name, strong sales and advertising capabilities, centralized reservation system and management expertise, owners typically get a higher-level of rental income than they might from the traditional vacation home.

Moreover, ownership is 100 % hassle-free, because the hotel operator manages finding hotel guests and maintaining the unit in addition to managing the property’s many facilities.

Condo-tel Expenses Are Usually Shared

How are the ownership costs split? Within the rental contract, the hotel will pay for most operating costs for example housekeeping, administration, sales and advertising. The condo-tel proprietor typically pays for property taxes, insurance and capital improvements. The rental income that owners receive helps defray these costs and, in some instances, provides additional income.

Condo-tels as Investment Tools

While developers primarily offer their condo-tel units as a life-style and vacation property alternative, many purchasers see merit in the condo-tel concept as an investment tool. They claim it provides them the best of both worlds. They are able to enjoy all the benefits of vacationing in a first-class resort while they own a home that has the potential to appreciate.

Saturday, April 19, 2014

Home Improvement is an Investment Strategy

If you're a home-owner, you understand how significant the real estate industry has become to the financial health and security of your family. Your home is probably your greatest investment, and like any investment, it needs to be maintained and protected. Regrettably, home maintenance tends to be delayed because of expenses or the failure to locate a decent contractor. The same applies to home improvements. The addition of a Florida room may be postponed when it might increase the value and enjoyment of the home.

Don't get caught in the trap of ignoring home maintenance and home improvements due to the fact the real estate industry is down. For anybody who is selling, potential buyers are going to be extra-critical and select homes which were well-maintained and looked after. And in downtimes, desirable extras such as sunrooms, patios, or pergolas are much more critical when potential buyers have a sizable assortment of homes to choose from.

Repainting your home is an excellent way to enhance its beauty and provide it what realtors call "curb appeal." Outside painting isn't tough and many home-owners undertake it themselves, but it could be a large and unpleasant job. A decent contractor could make things easier by recommending the correct paint for the home, showing different combinations of colors and meticulously chosen accent colors, preparing the exterior, and perform the painting rapidly and properly. Professional preparation includes power-washing and could include replacing wood, Masonite or plank siding and trim. This can protect against paint blistering, peeling or flaking afterwards.

Windows are an additional part of the house that's often overlooked. Many homes nowadays have dual pane windows for additional insulation and sound proofing. However, the seals on old dual pane windows tend to be leaky, leading to condensation and residue between your panes. Leaking seals defeat the objective of dual pane windows, and the glass gets dull and unsightly. Replacement windows instantly resolve this problem. I held off changing my windows because I anticipated it was a large, costly construction job. I quickly discovered that windows can generally be changed without tearing out the frames, and found an excellent contractor who did the work. If you're thinking of changing windows, investigate shatterproof, tinted, tempered and colored glass.

For people with a covered deck or any structure that is attached to the home, make sure to have a contractor look for dry rot, water leaks, cracks as well as other damage. These things are generally simple to repair, and they can really add up to expensive repair costs unless looked after. Cracks and holes in your homes foundation might provide entry for pests, rodents or water, so it is better to take care of those problems immediately.

Water leaks, in particular, can result in catastrophic problems. Water leaks are not only hazardous to your homes health they can be hazardous to your families health.

These days many people are paying more attention to their overall health. Therefore the question is: why not consider the same care when it comes to the family’s living area? You can find all types of health issues in your home, some are simple to deal with, and some aren't so easy. One of the most controversial health hazards in a home is the existence of mold. Mold is actually a normally occurring fungus that needs a dark, damp environment in which to cultivate. Mold grows on natural materials for example wood. This means that you can find a number of places in your home where mold could most likely grow. If your house is watertight, as it ought to be, then mold will never be a huge issue. The existence of mold is typically a sign that there is a water leak of some sort, somewhere in the house. Ideal areas for mold to cultivate are in the attic and in the basement. If mold is left untreated it can quickly spread throughout a home.

I look at one home that had been unoccupied for a couple of years due to foreclosure. There were tiny cracks in the foundation and water began seeping into the home. Before long, black mold began growing in the basement and quickly spread throughout the home. Eventually, the mold had become so bad that the cost to remove the mold was grater than the homes value.

Looking after one's residence is good business and an excellent investment. Whether it is creating curb appeal with gleaming new paint or a welcoming Florida room. If you plan to sell your house, or are simply keeping your home in good shape so you won't incur needless maintenance costs down the road, proactive home repair is essential. Many home-owners steer clear of those tasks because of expenses and the challenge of getting a good, dependable contractor. Don't quit, they are around and you will be glad when you locate a good one.