Whatever you think of health care, it will dramatically change all our lives.   For “higher income” taxpayers that make over $200,000 ($250,000 for a joint return), there will be dramatic changes.  One of the key elements to pay for health care is the “Medicare Tax”.  Congress and President Obama are taxing those “higher income” taxpayers with a new 3.8 percent Medicare tax on all investment income: interest, dividends, royalties, rents, and capital gains.

Also for the “higher income” earners, you will pay an additional .9% on your Medicare income as a federal income tax.  Currently Medicare tax on W-2 income is 2.9% with no cap.  Now, this additional federal income tax will be paid at the time you file your federal taxes, not collected with your payroll.

Usually when the government says income they mean Adjusted Gross Income, or AGI.  There might be some important considerations.  If your income is going to be over the limit ($200,000/250,000), it makes certain investments and options look more attractive.

If you are close to the $200,000 or $250,000 income limit, your AGI will be very important.  Of course, you will want it to be under the limit not to pay the additional tax.  Do you want to want a Roth IRA with no deduction or a deductible IRA? (This is the same for a deductible 401(k) vs. a Roth 401(k).  If you are on the bubble, you should probably consider a deductible IRA or 401(k).  Being above the bubble will cost you an additional Medicare Tax of 3.8%, if you are deciding on a Roth 401(k), that decision to make a Roth 401k contribution of $16,500 will cost you an additional $600+ in the new Medicare tax.  This is just one decision to consider.

Tax planing move to consider: If you are in the upper income brackets no matter what your retirement planning situation is, be sure to max out all IRA accounts including nondeductible IRAs.  For example, I just ran into a colleague and we were talking about health care and its effects.  Even though he has a 401(k), he will contribute $5,000 for 2009 and $5,000 for 2010 to his nondeductible IRA. Now he has sheltered an additional $10,000 from the Medicare tax.

Tax free investments in retirement accounts will become more popular.  The tax advantages have been amplified for all retirement accounts.  Any additional costs, which include the new tax, will decrease future returns.  Here is an example: if you buy rental real estate in an IRA and it has income, no taxes are due.  The same rental purchased individually in your name is subject to tax plus the new 3.8% Medicare tax.  All investment income inside an IRA is exempt from the new Medicare tax.  Assume in my example that additional 3.8% is $380 paid annually.  If the investor was able to reinvest the $380 for 20 years at 7 percent, that would mean a loss of future income of $15,578.29. It all adds up.

It is not just real estate that is subject to the new tax, it is interest on notes, corporate dividends and capital gains.  All investments will be subject to the new Medicare tax.  I did not include Health Saving Accounts in my discussion but they will become a necessity for investors.  The bottom line for “higher income” earners is that it is better to save in the IRA account versus outside the account.  Remember, if you save in the retirement account and have the same returns, the ultimate distribution from your IRA will not be subject to the Medicare tax.  Final thought: figuring out how to max out your IRA needs to be a top priority.  Sometimes you cannot beat those tax free strategies…

Dave Owens, CPA, CES is the managing member of Entrust Freedom, LLC.  Entrust specializes in Self Directed IRAs and 1031 Exchanges.  Check out Dave’s new book on real estate IRAs at www.daveowens.com.  He can be reached at owens66@entrustfreedom.com or 239-333-1031.

1. Diversify, Diversify, Diversify.  There is so much educational material and resources on the web there is no excuse not to get started planning.  Think outside the box.  Look at all investments opportunities including real estate, private LLCs, private stocks, commodities and futures.  Don’t limit your portfolio with CDs and stocks.  There are so many choices.

2.       2. Make your IRA contributions as soon as possible in the year.  Most IRA savers admit they are going to make a contribution but wait until the due date of their return.  Why not make your contribution 15 months earlier and get those extra returns.  If you can get a 7% return on your investment, over a 20 year period, your IRA will be 25% greater in value by making an early contribution versus a later contribution.  This is an easy change to make in your savings strategy.

3.       3. Watch your IRA investment fees.  I mean watch everything, from the fees that mutual funds will charge you, to annuity termination fees to the cost of owning a piece of real estate.  Warren Buffet’s main investment philosophy is don’t lose money.  Paying excessive fees is just like losing money.  Fees will erode your portfolio and lessen your returns.  Again analyze your investments not just returns but costs.

4.     4.   Keep your hand out of cookie jar.  IRA and 401(k) accounts are set up for your retirement not to buy a new car.  The government intentionally separated these retirement funds from your personal account so you would not touch them.  They also put a 10% additional penalty in place to deter you from accessing that money.  Discipline, Discipline, Discipline.

5.       5. Control all your retirement accounts. – Know where all your retirement accounts are.  The US Government reports that the average American changes job every 4 years.  Take your 401(k) with you.  The laws now allows for “portability”, that means you can either roll your 401(k) to an IRA or to your new employer’s 401(k).  Studies have shown that the average employee leaves his 401(k) with his old employer on average for 7 years after they have left their job.  It is your money; take it with you.  Also, don’t have too many retirement accounts; consolidate to reasonable number that you can control.

Number 5 ½  - Every year sit down and layout every retirement account you have and do some common sense evaluation.  The average American spends more time planning their vacation than they do planning their retirement.  Be different.

Dave Owens, CPA, CES is the managing member of Entrust Freedom, LLC.  Entrust specializes in Self Directed IRAs and 1031 Exchanges.  Check out Dave’s new book on real estate IRAs at www.daveowens.com.  He can be reached at owens66@entrustfreedom.com or 239-333-1031.

As someone that has been in the tax business for over twenty years, I cannot ever remember seeing any predicament like the tax code is in now.  Most people do not realize but I believe there will be major tax legislation sometime in 2010.  There has to be.  Because of the current stalemate in Congress, there are several problems in the tax code that need to be extended, corrected, or repealed.  I don't want to debate or argue fairness on any proposals.  My experience has taught me there is no right answer but there is an opinion. 

Back in the early 2000s, then President Bush passed a massive tax bill that was phased in over the decade.  What most people don't realize is that most of the tax changes expire on December 31, 2010.  While fundamentally the tax system does not changes, many tax rates, credits and deduction will phase out unless extended.  You can look at the glass half full or half empty but there many in Congress that are glad these tax provisions will go away, if for no other reason than to start reducing our federal deficit.

For example, The estate tax is a major controversy because the parties could not agree on a solution.  Effective January 1, 2010 there is no estate tax but on January 1, 2011 it comes back with a vengeance. The estate tax provision of the tax code is one of the largest.  Interesting how it is allowed to go away and then come back with reduced exemptions and higher rates.  Only in America I guess? Many in Congress  said for years that they would fix the estate tax, but January 1 came and went with no correction.

Capital Gains tax is interesting and will definitely be one of the most hotly debated taxes.   The current capital gain law will expire on December 31, 2010.  Short term laws will not change and long term capital gains will go up to 28% if there are no new law changes in Congress. Let me tell you the current law and what is being proposed.  The short term capital gain rates are based on your current income tax rates.  Long term capital gains rates are taxed at 15%.  This means any investments sold that are held less than one year will be taxed according to your ordinary income rates.  If you are in the 20% bracket and you sell some gains on short term real estate, the gain would be taxed at 20%.

Capital Losses have restrictions on them.  I have seen no proposals to change how capital losses are treated after December 31, 2010.  Currently capital losses are limited to a $3,000 write off per year until the losses are used up.  For example if you lost $18,000 on General Motor Stock and assuming you had no other gains, you would only be allowed to write off $3,000 for 6 years until the losses are used up.

You can net capital gains against capital losses.  So going back to my previous example, if I also had long term gains on say Google of $20,000, I could apply the gains against the GM loss and I would pay tax on the $2,000 net gain.

There is one caveat with netting gains and losses.  Short term gains must be netted against short term losses first and long term gains must be netted against long term losses.  For the best tax result, it is not advised to net short term losses against long term gains because the short term is taxed at ordinary income rates which are higher.  So don't waste a higher deduction (ST Loss) against a lower tax rate (LT Gain).  It is best to sell short term gains and net with short term losses.   While mathematically this works out fine, don't ask for the logic behind it.  The one thing I have learned there is no logic in many parts of the tax code.

The big question at year end is what is going to happen to long term capital gains.  Currently, if you hold an asset more than one year, it is taxed at 15% on the appreciation.  Remember at year end the rate is going to go to 28% if the law is not amended.

I have heard many proposals being tossed around on long term capital gains.  During the campaign candidate Obama pledged to raise all capital gains, now that he is President he is taking a softer approach.  His current proposal will leave capital gains at 15 or 20% on  taxpayers that have gross income under $200,000.  Taxpayers with gross income greater than $200,000 will have their rate go up to either 25% or 28%, which will be phased up from $200,000 to $250,000.  No one said this would be uncomplicated.

There is a thorn on this bush that must be addressed with capital gains.  Currently, ordinary dividends from corporate stocks are taxed at the capital gain rates of 15%.  The reason dividends get lower tax rates is because income from Corporations is taxed at very high rates with no deduction for dividend pay outs.  So when dividends are paid it is technically double taxation.  So President Bush and Congress enacted these special rates to lessen the blow.  Before the law change, if you were a high income taxpayer, and received corporate dividends, the corporation probably paid 35% tax and then you as a taxpayer paid another 35% on the corporation gains.  That is 70% tax on corporate earnings so the rate was lowered to 15% so now the max a corporation and the shareholder would pay is 50%.  Congress is hesitant to change this rate because the majority of dividends go to retirees.  So the rate on Dividends should stay at 15%   

The final unknown is depreciation recapture tax or Section 1250 tax.  Most taxpayers are totally unaware of depreciation recapture tax.  Capital Gains tax is on appreciation, so if you buy a rental house and sell it for a $10,000 gain from the purchase price, the appreciation is taxed at 15%  today in 2010.  What many taxpayers do not realize is that any depreciation I wrote off when I owned the house is taxed at 25% when I sell.  For example, let's assume I bought the rental house for $100,000 about 10 years ago.  During the last 10 years I wrote of approximately $20,000 of depreciation.  Now that it is time to sell, the depreciation is taxed at 25%(20,000 * 25%) and appreciation is taxed at 15% (10,000 gain * 15%) so my effective tax rate is blended and not a flat 15%.  Real estate investors should calculate all gains before selling.  I have seen no proposal eliminating depreciation recapture tax.

Sometime this year Congress will have to address these upcoming tax laws that are expiring.  The deficit will be a burden and will have to be confronted; the tax code is the first place to go.  What will happen to capital gains taxes? As always, the truth lies somewhere in the middle.

Dave Owens, CPA, CES is the Managing Member of Entrust Freedom, LLC a company that specializes in Self-Directed IRAs and 1031 Exchanges.  Dave can be reached at 239-333-1031 or owens66@entrustfreedom.com

Make your retirement investing easier.  One of the nice things about the current retirement plan laws is that you can consolidate or diversify your IRAs and in certain situations your 401k plans.  A unique benefits of IRA accounts is that you can have as many or a few as one IRA custodian. 

Currently all IRA custodians are equal in the eyes of the law from stand point that all fall under this IRA umbrella.  Moneys can be moved between custodians tax free at any time.  This called a custodian to custodian transfer.  As long as the money stays under this IRA umbrella and not distributed to the beneficiary it is a tax free event.

There are many benefits of consolidating you accounts and in some cases diversifying. By consolidating your IRA accounts, it can make it easier track and manage your portfolio.   It is easy to check asset performance and diversification in one account versus five.

A Self Direct IRA might be the key to getting complete control of your retirement assets.  Typical stock and mutual fund IRA custodians only let you purchase the assets they sell, if you don’t like their investment choices, you can have few options.  A Self-Directed IRA is an “empty” Trust Account for your benefit. I say empty because a Self-Directed Administrator is not allowed to sell product.  They work only to administer the account not advise.  You can purchase any allowable assets including real estate, gold, private LLCs and stocks, notes and publically traded stocks and bonds.  You as the investor have control to direct your custodian to purchase the asset you want and are comfortable with giving you the ultimate diversification.

With a 401(k) plan you are allow to rollover your retirement assets to an IRA account tax free typically when you leave service with the company.  Some plans allow you to move assets even during your employment.  Again, this is another opportunity to consolidate your retirement assets under one roof.

If you would like more information on how to consolidate or transfer your retirement assets, call Entrust Freedom, the IRA experts.   Every taxpayer is unique so it is important to have a tax advisor you trust when making all financial decisions.  Please consult your tax advisor before all major tax decisions.

Dave Owens, CPA, CES® is the managing member of Entrust Freedom, LLC. Entrust Freedom is a member of The Entrust Group, the largest Self-Directed Administrator in the United States.  Dave can be reached at 239.333.1031 or mailto:do2010@1031company.com

Make your retirement investing easier.  One of the nice things about the current retirement plan laws is that you can consolidate or diversify your IRAs and in certain situations your 401k plans.  A unique benefits of IRA accounts is that you can have as many or a few as one IRA custodian. 

Currently all IRA custodians are equal in the eyes of the law from stand point that all fall under this IRA umbrella.  Moneys can be moved between custodians tax free at any time.  This called a custodian to custodian transfer.  As long as the money stays under this IRA umbrella and not distributed to the beneficiary it is a tax free event.

There are many benefits of consolidating you accounts and in some cases diversifying. By consolidating your IRA accounts, it can make it easier track and manage your portfolio.   It is easy to check asset performance and diversification in one account versus five.

A Self Direct IRA might be the key to getting complete control of your retirement assets.  Typical stock and mutual fund IRA custodians only let you purchase the assets they sell, if you don’t like their investment choices, you can have few options.  A Self-Directed IRA is an “empty” Trust Account for your benefit. I say empty because a Self-Directed Administrator is not allowed to sell product.  They work only to administer the account not advise.  You can purchase any allowable assets including real estate, gold, private LLCs and stocks, notes and publically traded stocks and bonds.  You as the investor have control to direct your custodian to purchase the asset you want and are comfortable with giving you the ultimate diversification.

With a 401(k) plan you are allow to rollover your retirement assets to an IRA account tax free typically when you leave service with the company.  Some plans allow you to move assets even during your employment.  Again, this is another opportunity to consolidate your retirement assets under one roof.

If you would like more information on how to consolidate or transfer your retirement assets, call Entrust Freedom, the IRA experts.   Every taxpayer is unique so it is important to have a tax advisor you trust when making all financial decisions.  Please consult your tax advisor before all major tax decisions.

Dave Owens, CPA, CES® is the managing member of Entrust Freedom, LLC. Entrust Freedom is a member of The Entrust Group, the largest Self-Directed Administrator in the United States.  Dave can be reached at 239.333.1031 or mailto:do2010@1031company.com

The magic day for Roth IRA Conversion is quickly approaching - January 1, 2010.  This will usher in a whole new era for investing in Roth IRAs.  Currently, if you have adjusted gross income of greater than $100,000, you cannot convert your Roth IRA to a Traditional IRA.  Effective January 1^st, the law will allow everyone, no matter what your income is, to convert to a Roth IRA.

The benefit of converting lies in the fact that distributions from a Roth are tax free versus taxable in a Traditional IRA.  From an investment stand point, a better decision would be to convert appreciating assets.

If you are considering making a conversion, there are several factors that must be considered.

1.       Value of the asset being converted – Based on current market condition it might be an excellent time to do a conversion.  When you do a conversion to a Roth, you do have to pay regular tax based on the current value.  If you own a piece of land, this might the time to do the conversion because most values are down.  If you own gold, you might want to hold off because gold prices are at all time high.  As noted above, you will have to pay income tax on the converted amount but you are not subject to IRA early distribution penalties of 10%.

2.       Do you have the money to pay the tax on the conversion?  Typically you do not want to use IRA conversion money to pay the tax.  It is best to use personal funds so that all tax sheltered retirement money can continue to grow tax free.

3.       What will your income be in the year of conversion?  If you know that your income will be down in 2010 that might be a better year to convert versus future years when the income is greater.  When you do a conversion you are still taxed but try to do a conversion when in a lower  tax bracket.

Finally any Roth Conversion in 2010 will let you defer the tax payment for two years.  This is a special onetime tax law change.  The way it works is, if you do a conversion in 2010, you will report no income in 2010, half the conversion amount as income in 2011 and the other half in 2012.  That means the final tax payment could be delayed until April of 2013.

Please consult your tax advisor before doing a Roth Conversion.  Everyone has a unique tax situation so please take the time to learn the learn the law and understand these changes.

Dave Owens, CPA, CES, is the managing member of Entrust Freedom, LLC.  If you have any questions about this article and would like more information please feel free to contact the author.  Dave can be contacted atowens@entrustfreedom.com or 239-333-1031.  Dave has been a practicing tax accountant for over 20 years. 

How do we make our financial decisions? Why do we invest the way we do and what is the benefit?  I think the current economy has put a cold dose of reality in every type of investor.  Many of us now realize that when our parents were harping on hard work and telling us what the world used to be like, they were not kidding. Oh my gosh, did I say my parents were right?

Building wealth is a long term process and it is a ton of work.  I think technology has helped us lose sight of how long it actually takes to build wealth.   The internet gives us instant access to so much information.  We can invest in stocks and watch them all day long, or have an email sent to us every hour telling us how the market is doing.  Today, I repositioned my portfolio only to look at it at lunch and find out it was down already.  Why did I look?

This is where an old Math formula could never be more important.   It is called the Rule of 72 and it should be one of the first things you learn when starting to invest.  The Rule of 72 is a math formula used to project how fast you can double your money based on a certain rate of return.

The formula is very easy and it is very useful to understand how powerful compound interest really is.  If we divide 72 by our projected rate of return, we find out how long it will take us to double our money.

Let's go through a simple example.  Assume I want to buy a rental house and I determine that with rental cash flow and market appreciation, I will get a 6% rate of return.  I divided 72 by 6, and it tells me it will take 12 years to double my original investment (72 /6 = 12).

Now let's assume you are in the highest tax bracket and Uncle Sam is going to tax 1/3 of your annual gain, so after you pay your taxes, your return is only 4% annually.  Now let us apply The Rule of 72; 72 divided by 4% return and the answer is 18 years.  Taxes or unexpected costs can quickly derail project profits or wealth. 

That is why it is important to understand investing and all the options available.  There are some great tax strategies available and they can be a great opportunity for everyone.  Some of the most popular strategies that help defer or eliminate taxes are 1031 Exchanges and Self-Directed IRAs.  By taking advantage of these strategies, your returns can be maximized by reducing taxes and helping the investor increase their returns sooner.  Self-Directed IRAs are a great opportunity for investors to use retirement funds to by real estate and other alternative assets.  The benefit is that no gains inside the IRA account are taxable until withdrawn.  This can lead to tremendous amount of wealth being accumulated in the retirement account.  The other option for real estate investors is a 1031 exchange.  1031 allows you to sell your investment real estate (please note this is non-IRA property) and pay no federal or state capital gain taxes on the transaction as long as you buy a new piece of investment real estate within the guidelines. Both strategies can be a huge benefit to savvy investors. Please consult your tax advisor for specific details regarding your situation and if you qualify.

The funny thing about the Rule of 72 is that the number we need to actually double our money is not 72, but 69.3.  The Rule of 72 is actually an estimate, and I think they thought no one would believe The Rule of 69.3, so somewhere along the line it was rounded up because it is so much easier to divide into 72.

If you want to know how long it will take you to triple your money, it is actually The Rule of 110.  For Example, 110 divided by an 11% rate of return, would mean it would take 10 years to triple your money. 

While none of us want to be math wizards, it is important to understand the basics or variables of wealth building.  In the long run it is will be well worth as grow your dreams.

Dave Owens, CPA, CES, is the managing member of Entrust Freedom, LLC.  If you have any questions about this article and would like more information please feel free to contact the author.  Dave can be contacted at owens@entrustfreedom.com or 239-333-1031.  Dave has been a practicing tax accountant for over 20 years. 

This spring it might have been an investment fad, now it is serious investments strategy, buying gold in your IRA.  This can be a well positioned move for many retirement accounts that are looking for security and stability in the coming years.  As we hear the term "Second Stimulus" being loosely floated to the public, fears of inflation grasp every economist.  In this scenario the economics lesson is simple, if you print too much money, it becomes devalued and tangible assets, like real estate and gold, will go up in value.

Gold can be held in IRAs and most retirement accounts in many different ways.  Some of the most common ways to hold Gold include:

•1.       Gold Bar or Bullion

•2.       Gold Certificates

•3.       Gold Money

•4.       Gold Mutual Funds

Owning gold bars is easy accomplished through a Self-Directed IRA.  The IRA owner is in complete control of their investments.  Typically the IRA owner directs their administrator to purchase the Gold through a prearrange purchase with the dealer that the client chooses.  The gold is usually held at a large company called a depository.  The depository will guarantee security of the gold.  There are several large depositories throughout the United States.  The depositories will charge a fee to store the gold and the nice part is that most depositories will not commingle your gold.  When you would like to sell your gold the depository will sell the gold and transfer the currency back to your IRA, it is a very smooth transaction.  Entrust is one the leading administrators of Gold IRAs in the country.

The argument is commonly made that holding gold in a mutual funds is the best way.  While it can be easy to purchase gold and silver this way, it is not the cheapest.  When you buy in a fund, the investor is at the mercy of the fund manager and has no control over their fees or expenses inside the fund.  The goal is preservation of principle and keeping costs down, this is not the case with a gold mutual fund. 

While the Gold is used throughout this article, any precious metal can be held in an IRA, the most common include, silver, platinum and palladium.  All have they own risk and specific guidelines and constraints.  While holding actual gold is common and easy, Silver is not typically held outright because of the weight and inconvenience.  The author can vouch for this last statement.

If you would like more information on purchasing Gold in your IRA, please feel free to contact Entrust Freedom at www.entrustgoldira.com or calling 239-839-1031 x212.  Entrust will be happy to send you a complete packet that outlines all the steps in purchasing the gold and other alternative assets including real estate.

Dave Owens, CPA is the Managing Member of Entrust Freedom, LLC.  Entrust is the largest IRA Administrator in the United States.  Please feel free to contact Dave with questions at 239-333-1031 or owens@entrustfreedom.com

Concentrated power has always been the enemy of liberty. - President Ronald Reagan

I don't want to be political, but I can feel a change in our Nation and it struck me how it applies to what I do for a living.  I have discovered Politics will never make you friends or clients - I will keep the political commentary brief.  Whether we like it or not, the society we live in is changing dramatically or at least our view of society is.  On the front page of USA Today, June 17^th, they noted a story about an agency that is being created by the current Administration from the Office of Consumer Finance.  The article stresses how consumers need financial protection; Big Business has made some major mistakes that have cost us all financially. 

For example, giving a credit card to every college student (90% of whom don't have jobs) was probably not Citibank's best move.  Every time I go to a Florida Gator football game and I see the credit card companies giving out a free Gator T-Shirt if you sign up for a card, I am amazed by the number of students and non-students lined up to get a free T-shirt.  Either they have no clothes or they are really hurting with the economy the way it is; that same shirt is $7 at the corner vendor. 

By creating this new department, what we are doing is saying that consumers don't need to think or take responsibility for their financial actions.  Uncle Sam will save them and the new department will only cost 100 Billion Dollars per year to run.  It would probably be cheaper to send the money to everyone that does not want to take responsibility for their financial actions.  As a society, we have decided that consumers don't want to read the fine print, so the Government will do it for them.  I am sure Former President Reagan turned over in his grave at thought of this new agency.  God rest his soul.

Government does not solve problems; it subsidizes them.  - President Ronald Reagan

One of the things our government has done right is to allow for Self-Directed Retirement Accounts.  The spirit of Former President Reagan lives in Self-Direction.  Self-Direction is independence, free thinking, control and most of all risk-taking.  This is your retirement and it is your responsibility.  

Self-Direction allows investors to buy alternative assets like real estate, private notes and mortgages, private LLCs, hedge funds, small community bank stock and gold.  What is more American than an investment in gold?  You can also buy more traditional assets like stocks and bonds with a Self-Directed IRA.  With Self-Direction you must do the research, read the fine print and decide what is best for you.

I think the government does not realize that most of us want to take risks; it is in our nature, we are Americans.  If some individuals don't want to read the fine print on their mutual fund statement and find out they are getting charged  an 8% load fee a year,  they need the suffer the consequences.  They do have options with Self-Direction.

Thank you President Reagan for your inspiration and the opportunity you gave us to think for ourselves and control our own lives.

Government's first duty is to protect the people, not run their lives. - President Ronald Reagan

 Dave Owens, CPA, CES is the managing member of Entrust Freedom.  Please feel free to contact him at 239-333-1031 or owens@entrustfreedom.com.

There was nothing better than being a Real Estate Flipper in 2004 and 2005.  The Flippers would buy a piece of property today and literally sell it for a 10, 20, 30% return in a matter of days, weeks or months.  These returns were unheard of in market history.  We should have all known.  The interesting things was, the Flippers were not a small group, there were thousands of these “investors” involved in transactions throughout the country.

Unfortunately if you were holding a property around mid 2006, your pumpkin came due and you turned in to a Flopper.  Floppers got upside down on properties.  Also many Floppers did not have the financial means to carry the properties resulting in the enormous foreclosure numbers we have today.

But do not despair; the Flippers are back in the 2009 real estate market.  Real Estate is making history again, this time for large price decrease.  Cookie cutter real estate developments throughout Florida have seen price decrease as much as 60%.  Markets in Las Vegas, Chicago, and California have seen similar price decrease.  It is to note prices in metro areas that actually produce jobs have not seen the huge price decrease as have the speculative or vacation areas. 

So here they come in full force, the Flippers are making their come back.  With depressed prices, investors are buying property from sellers that must get out at bargain prices.  The savvy investor can find tremendous deals. The nice part is that these properties have solid fundamentals that make investing a good move at these low prices.  Cash flows on rentals make sense again and investment ratios are inline to make decent returns.  With appreciation on the horizon, we see clients buying real estate in their Self Directed IRA.  Assets inside a Self Directed IRA are tax free when sold guaranteeing additional funds are available for the next investment, not paid away as taxes.

At the Lee County Court house in Florida, on average there are 10 foreclosure specialist on any given day, that number the last month has jumped to over a 100 investors bidding on properties.  The typical strategy of the foreclosure specialist was to buy the property so low and then quickly put it on the market for a price that was usually the lowest in a neighborhood to guarantee a quick sale.  There have been so many foreclosures flooding the courthouse that smart buyers have figured out the deals. The effect is that now that demand is up, prices are not at rock bottom levels the are increasing because of the competition at the foreclosure auction. We are starting to see the signs of prices leveling off and actually increasing because of the demand.

Flippers need to be smarter than last time.  The highest price was only price that was accepted for a Flipper to sell in 2005, now they are notching their price just below the market to guarantee a quick sale.  Flippers will always be around; this time there will be a lot less.  In parting, next time my barber or waiter tells me what they are flipping real estate; I will run home and make sure I that I am selling.

Dave Owens is a CPA that specializes in Self-Directed IRAs and 1031 exchanges.  Please feel free to call him at 239-333-1031 or email him at owens@1031company.com.