Does it make sense to buy a house for the tax advantages? Apparently quite a lot of people think so. check out the comments on Renting is for suckers”. There are over a hundred comments. Quite a few of them say you should buy even if the housing market is heading down because “in the long run, its a good investment”. Funny, thats exactly what I heard today in the office. One of my co-workers wants to buy a house right now. So what if its going down. It can only go down a little bit and in the long run, it can only go up. Of course, in the long run we’re all dead and some people are always broke!

Not wanting to figure out how investing works and what rich people do to become rich and stay rich is a trait that most of my friends share. They also believe that buying a house for the tax write-offs is a good idea. Since when is spending a dollar to save 30 cents a good idea? If you can rent an apartment for half of what the mortgage is, why would you buy it? You’re better off buying a house in an appreciating area even if its out of state and holding that for a few years. With the depreciation, you’ll probably save the same if not more on taxes. And once the local market settles, you can sell the out of state property and buy a bigger house for less.

Financial Fruition is hosting the 52nd Carnival of Personal Finance and I get a mention! Check out How to Save Money on Shoes if you haven’t already read it. Or better still, to save time I’ll just tell you – run barefoot!

Paul’s tips on negotiating are pretty good.

I made the 26th Carnival of Investing. Check it out. It has several good posts.

The first post is about buying properties to become a millionaire. Quite a stellar approach! He’s going to buy 5 properties at 200k each. He thinks he’ll get an 8% yield on 4 of them which will net him $64k/yr. [This is of course after the houses are paid off].

The good thing about this approach is that rents are indexed for inflation, so if things become more expensive he’ll get to raise the rents. The bad thing is that as time goes by, your return on equity decreases. Earning 8% on your 10 million dollars is fine, however if you have a lot less, you should strive to earn a lot more.

In some of my investments I’ve made 1500% in 6 months, others have yielded 1000% return in 18 months. Quite a lot have made 100% in less than a year. This is your cash on cash yield [which is what concerns you] and not the total yield of the investment. For example, assuming you buy a $200k house with $5k down and you sell it after 12 months and profit $40k, your yield is 800%. This beats the stock market anyday!

Of course when dealing with leverage, one must remember it cuts both ways. In a down market, you can be reduced from a millionaire to a pauper in a few years. Donald Trump is reported to have once said the difference between himself and a homeless person was that the homeless person’s networth was higher by several hundred million dollars.[Of course, if you owe the bank several hundred million dollars, its the banks problem, not yours!]

Got back from Salt Lake City late last night. Had a great time. Met several investors I know who invest in that market but live in Southern California. I went to check out one of my houses that is currently being built. The house next door is being resold for $295,000. Don’t know if it’ll sell for that price, but based on that price, my home should list for $275,000. I have it tied up at $205,000 so I’m really happy!.[Just because I theorectically have $70k equity in it doesn’t mean I’ll make $70k on it. There are closing costs and holding costs that eat into the profit].

Sunday I went to Rockport National Reserve which is about an hour from downtown Salt Lake City and tried my hand at driving a speed boat. It was a lot of fun. Also tried “the tube”, which is a tiny dingy with handles that is tied to the boat. The was fun until it overturned and I got dunked in freezing cold water!

Don’t you love tax deductible business trips!

Going to Salt Lake City tomorrow for the weekend. I have several investment properties out there and I’ve convinced some of my friends to buy there too. So we’re going to hang out and make it a good tax-deductible trip! Ever since I read Robert Kiyosaki’s Rich Dad series of books, I’ve been dreaming of taking legitimate business deductions and trips.

I have several real estate, oil and a VOIP business going on in addition to my regular job, so I have quite a few business and investment related deductions that were not open to me a few years ago as a regular employee.

As a real estate investor, you also get to depreciate your houses to a cap of $25,000 against your regular W-2 income. If you invest in oil, there is no cap. If you invest $50,000 on december 31st in an oil well, you can write off 80-90% of it against your income in that year itself. Its a great legitimate tax shelter!

I love passive investments!

Went to the local real estate seminar last night. The speaker was Kendra Todd, winner of the 3rd “Apprentice” TV show hosted by Donald Trump. She was there to promote her new book Risk And Grow Rich. Bob Bruss calls it a 10 out of 10 so it should be pretty good, however her seminar wasn’t all that exciting. It was basically a sales pitch for her over-priced condo conversion in Pheonix,Arizona. She a 360 unit apartment complex for sale, with about 120 units going to investors at around 250k/unit. The rents were around 1000/mo. That market is pretty much done. Its on its last legs.

She quoted some statistics saying that 36% of all home sales were 2nd homes. She touted that as a good thing, however I see that as a negative. With raising interest rates, the number of buyers might dry up leaving a lot of people holding houses that they can’t afford and can’t sell either.

She was also promoting plane tours. Some of you may have heard of bus tours. Well she was taking groups of 30 investors on a plane tour. For $299, you fly from LAX to Pheonix and she shows you exclusive properties for investing in. By exclusive I think she means those 120 units in a 360 unit complex where the builder was throwing in 6 months with no mortgage payments.

She may be a really good sales person and much richer than me, but I don’t think the stuff she was promoting was investment grade. I can find much better stuff on my own.

Bank of America has joined Google in offering a cash incentive to employees who purchase hybrid cars. I wonder why?

I also wonder what the tax implications of this are. Is it counted as regular income? The government already offers a tax credit if you buy one of these things. So thats a double bonus for some lucky foik.

Uhni (Ultra High Network Individual) of LiveJournal has a great post on VPFs. I had to read it about 5 times before I got the hang of it.

If you have a million dollars worth of stock and want to sell a portion to use the money, you can implement a VPF to defer any taxes. Its pretty complex so grab a strong cup of joe before you start.[and a bottle of asprin].

One interesting tool made available to high net worth individuals is called a Variable Paid Forward, or VPF. Their intended use is to take cash out of your current investment that for some reason you may not want to sell right away.

The way they work is to use a collar options strategy to guarantee a future value of the investment. Since the value is guaranteed, the brokerage is comfortable loaning you the equivalent present value at a risk-free interest rate.

A collar means that you’re buying a protective put, which protects your investment against future loss. You are buying this insurance, and to offset the cost, you can write a call option, which puts a maximum price at which you can sell. In effect, for roughly no cost other than fees, you’re guaranteeing that your investment won’t lose value; however, if it goes above the maximum price set by the call, you miss out on those gains.

Because you’re guaranteed that your investment has a minimum future value, there is no risk that you won’t be able to pay off a loan at that amount. Since there is no risk, the interest rate on the loan should have no risk premium; it is a risk-free interest rate.

Ever gone to buy a pair of sneakers and find the designs you like all cost a $150?
Well now theres a great way to save on them. Just walk barefoot!

The wall street journal reports that

Some experts now believe that most athletic shoes, with their inflexible soles, structured sides and super-cushioned inserts keep feet so restricted that they may actually be making your feet lazy, weak and more prone to injury. As a result, barefoot training is gaining more attention among coaches, personal trainers and runners.

While exercising without shoes may sound painful, the idea is that your feet need a workout, too. Proponents believe running barefoot changes a runner’s form and body mechanics to prevent some common athletic injuries.

One series of studies from Canadian researchers concluded that heavily cushioned shoes were more likely to cause injury than simpler shoes. They also concluded that more expensive athletic shoes accounted for twice as many injuries as cheaper shoes. The data aren’t conclusive. It may be that buyers of expensive shoes are more injury prone or more active, and therefore more likely to sustain injuries. A summary of the data on barefoot training can be found at www.sportsci.org/jour/0103/mw.htm.

Of course, NIKE has to jump on the bandwagon and has come out with a shoe that mimicks training barefoot. [That shoe will probably be $200!].

A few weekends ago, the wife and I went down to Mexico for a day trip with another investor couple. Had a great time and had great seafood. On the way back, which was a 4 hour drive because of the wait involved in crossing the border, we listened to the audio book version ofAdventure Capitalist : The Ultimate Investor’s Road Trip.

Its the story of an investor who drove around the world in a mercedes roadster and documented his journey. Its incredibly interesting and teaches you about planning for road trips and of course investing in foreign markets.

I wasn’t a big fan of audio books before this, but now I’m sold. They’re especially useful on long trips and help keep you calm during traffic jams. I also recommend going on long trips with investors too!