Accountantfinancial advisor

It is very important to meet on a regular basis with your accountant and or financial advisor throughout the year to discuss your investment and to be prepared in your tax planning throughout the year. In this way, you can discuss your properties in advance instead of getting surprised when you visit your tax accountant during tax season. Some accountants even have a checklist to help you organize your files and your bookkeeping system. Sure, you need to have a basic understanding about your investment, but you're not expected to know all the tax laws. That why you hire a good, reliable accountant to take care of your tax needs.

How Helga learned to mistrust accountants

Helga, a psychologist, had always wanted to be an accountant. She bemoaned the fact that her discipline was subjective and lacked precision, and wished that she could work in a field where there were clear rules and principles. One day, she read an article in the Wall Street Journal on Global Telecom, whose stock, the report said, was trading at half of its book value. From her limited knowledge of accounting, Helga knew that book value represented the accountant's estimate of what the equity in the bank was worth. If a stock is trading at less than book value, it must be cheap, she exclaimed, as she invested heavily in the stock. Convinced that she was secure in her investment, Helga waited for the stock price to move up to the book value of equity. Instead, it moved down. When she took a closer look at Global Telecom, she learned that its management had a terrible reputation and that it had either lost money or made very little every year for the last 10 years. Helga still kept her...

Hiring a TaxSaVVy Accountant

Unfortunately, reality is a little more complex, and having a professional accountant on hand can help you avoid unnecessary expenses and legal woes. Your accountant can take all your money and receipts out of your shoe box, sort through them, figure out whether you made any money, and if you did make money, she can calculate the amount of tax you owe. An experienced accountant also delivers the following benefits Go with an accountant who has plenty of experiencing keeping the books for real estate investors. If you already have a general accountant who files your state and federal tax returns but has little experience in the real estate arena, consider hiring a different accountant to keep the books for your real estate investments. Ask your real estate attorney or agent for recommendations. Your current accountant may also know someone who's more qualified to deal with real estate. Interview at least three candidates.

Certified Public Accountants

A person needs to do three things to become a certified public accountant (CPA). He or she must earn a college degree with a fairly heavy major (emphasis) in accounting courses. The American Institute of Certified Public Accountants has strongly encouraged all states to enact laws requiring five years of education. Many states have passed such laws some go effect in the year 2000. However, some states notably California at the time of this writing have not enacted such laws. Public accounting experience is a good stepping-stone to other career opportunities. Many persons start in public accounting and end up as the controller (chief accountant) or financial vice president of an organization some become presidents and chief executive officers (CEOs) of business organizations. Some CPAs go into politics, and a few became state governors. Persons who have left public accounting are still referred to as CPAs even though they are not in public practice any longer. This is like a person...

Meeting with your accountant

When it is time to meet your accountant, be prepared and arrive with your records organized. (If you are paying the accountant an hourly rate, you will save money as well as time.) Some accountants will give you a list of what you should plan to bring in advance. A good accountant is someone you hear from on a regular basis, not just at the end of the year. If you have an organized filing system along with a property management software program, you will avoid having to scramble around in search of your receipts and paperwork a few days before your appointment. Keep your records accurate and organized all year round. Put receipts and records in their place and in the long run, you will be much happier and your systems will run much smoother.

Recognizing the value of professional accounting software

However, as good as these programs are, they lack the specific rental property features and reporting that are invaluable to effective property management. If you have more than five rental properties, we strongly recommend purchasing a professional rental accounting software program. These programs typically offer the following Another advantage to using the computerized rental property accounting software packages is the ability to have your mortgage and other bills deducted electronically. Or you can work with these software packages to pay your bills online. If your tenants pay their rent electronically as well, you can decrease the time you spend handling rent collection and accounting.

Hiring an accountant

A very important part of owning property is the accounting part of the equation. Accounting is the procedure that lets you know how things are running, and you need to know whether your investment is running in positive or negative numbers. A good accountant will be able to tell you not only that but also what you need to do to increase your profits. If there are losses, your accountant will make sure to point them out. The information he or she provides you allows you to refocus your direction, if need be. This is why I recommend two appointments one during the year, and one early on in the year when you begin ownership. Later on, you and your accountant will adjust the appointments according to need. You need to be sure to hire someone who can handle the accounting for you professionally. Your accountant will perform an audit of your records to make sure you are allocating things correctly. Remember Accountants aren't the same as bookkeepers, although most people think they are one...

Running your business like a business

Setting your business up correctly in the beginning means you need to meet with several professional people to gain practical knowledge. Consider meeting with a real estate agent, banker or mortgage broker, accountant, insurance agent, attorney, and (if you want someone to manage your property for you) property manager. See the following section for details.

Know What Is Important

Timing plays its most important role in the step that comes just before your gaining control over the situation. For example, suppose you have made a decision that rental apartments are what you want to buy. Your goal is to own enough rental apartments to allow you to hire full-time outside management to professionally and effectively manage and operate the investment. This is your choice because it fits the kind of lifestyle you want for yourself and your family. You have hired a good real estate lawyer and a good tax accountant to advise

Expanding your business

It is important to keep your rental rates as close to the current market as possible. This goes hand in hand with the market value of your investment So, as the value of the property increases, the rent should increase a similar amount. (Note that most single-family homes are appraised based on comparable homes selling in the area. Multi-unit properties, on the other hand, are appraised based on the rental income and or the CAP rate, which is the net operating income divided by the sales price.) Before purchasing a multi-unit building, it is a good idea to calculate the break-even rate so you will know what level of occupancy you need to break even with your expenses an accountant or Realtor can help with this.

Taxes Licenses and Insurance

That said, tax laws are much more complicated for a investment property than for a personal residence. The taxation laws are quite different and change often, making it difficult to keep up. For this reason, an important part of owning property is having a great financial planner and a certified public accountant (CPA), both of whom have a great deal of knowledge in real estate. In the tax world, there are generally two types of income ordinary income and capital gains. Ordinary income includes your wages, salaries, bonuses, commissions, dividends, rental income, and interest income. This is taxed at varying rates, depending on your tax bracket. On the other hand, you have to handle the other type of tax, capital gains, delicately, because this is the tax for income that is generated when possessions, including stock and real estate, have been sold for a profit. There are formulas for everything when it comes to ordinary income and capital gains income. You need to be sure you have...

Meet the Tax Free Exchange

Wallace decided that another available option was to reduce the amount of cash needed to take control of the property. With his accountant, he worked up an attractive package that, when coupled with the sale-l easeback technique, would allow a buyer with little cash to purchase the property. This technique enticed more buyers and produced the desired results of selling the property.

Maintenance and Repair

Get everything in writing Disclose everything to everyone in writing. Be sure that all of your business arrangements are legal and ethical in your state or wherever you are investing. I suggest you always consult with your attorney and accountant to avoid costly lawsuits down the road.

Making money in the Futures markets

Just remember, making money in the futures market won't happen overnight. You will have to apply yourself, study the markets and charts, make a game plan and follow your plan consistently. You will also have to be conservative. It's a lot like a conventional retail business, where you learn all about the business, study the ins and outs and seasons, formulate a business plan, and open up for business. Once you start trading you should keep good accounting records so you can track your expenses, profits and losses. Tracking your trades can be done through accounting software, such as Quicken or a simple Excel spread sheet, this is important because you should be able to compare your records to your brokers statements It also helps you to calculate your overall returns. Try not to get greedy. Greedy people often lose out and don't profit at all. No one likes to study or have to figure out charts, formulate plans, and have patience and management right Unlike other businesses that...

The Problems With Conventional Wisdom

In their advice for accessing capital, many popular business books suggest networking for your venture in the hope of securing promising referrals by talking to your accountant, attorney, doctor, dentist, or some other adviser. Networking is a term widely used, yet it refers to a concept often misunderstood. Networking is overworked more important, networking works indirectly. Instead of approaching the investor directly, networking lodges faith in the hands of someone else, hoping that he or she will be able to help, for example, doing initial prospecting and qualifying of the potential investor.

Evaluating Commercial Real Estate

There's a myth going around town that you need to be an accountant with an Ivy League degree to evaluate and analyze office buildings, retail centers, and apartment complexes. Don't believe the hype. If you can count and do some basic math, you'll have no problem figuring out what your cash flow and return on investment are for any piece of commercial property. In fact, we guarantee that after you read this chapter and follow along with the examples, you'll be able to figure out what a commercial property is worth just like those sophisticated investor guys you see with their pocket protectors and fancy spreadsheets.

Guiding homeowners to good decisions

When helping homeowners, you can't try to pass yourself off as an attorney, accountant, financial advisor, or therapist, unless you really are one. However, you're often called on to play some of these roles. Like a therapist, you have to learn to listen to the homeowners. Like an accountant, you need to be able to look at the homeowners' finances to assess their options. And, like an attorney, you need to know the foreclosure and redemption laws in your area. d NG Make it very clear to the homeowners that you are not an attorney, real estate agent, or accountant, unless you really are one. State up front that you're an investor representing yourself. Full disclosure is the best policy. Passing yourself off as something you're not is fraud.

Financing Rental Property

Before you start shopping for your first investment property or another investment property, take the time to know where you are financially. Meet with your accountant, and then meet with a mortgage broker or banker to find out what he or she is looking for to qualify for a loan for an investment property. Get pre-qualified so that you know where you stand financially prior to looking at and finding a property to purchase.

By Barbara Rockefeller

A stock-market crisis exacerbates existing confusion. A stock-market crisis usually causes safe-haven flows into fixed income notes and bonds, driving the price down and the yield up. A rising yield favors the currency, but so does the knee-jerk flow out of the crisis currency into a safe-haven currency. If a crisis in a foreign stock market causes a safe-haven flow into U.S. fixed income, by definition it's also a flow into U.S. dollars. You'd have to be a forensic accountant to figure out how much flight capital goes into notes and bonds and how much goes into plain old dollar cash accounts.

Finding a Cash Stash Knowing Your Financing Options

Whey you buy a home to reside in with your spouse, I recommend that you own the home jointly, but when buying investment properties, only one of you should sign the mortgage and promissory note (the promise to pay), if possible. This puts the property you own jointly at less risk. In some states, any real estate owned by the husband is also owned by the wife, but not vice versa, so this may not be an option for men . . . sorry fellas. Consult your attorney and accountant to determine strategies for lowering your exposure to risk.

Tapping into your retirement savings

Consult your financial advisor and accountant for details about using a self-directed IRA to finance your foreclosure investments. If a self-directed IRA is not a viable option, you may be able to borrow money against your retirement account. Keep in mind, however, that borrowing against your retirement savings places that savings at risk, as does any other investment.

Study the Numbers and Keep It Simple

You don't need to know the internal rate of return (IRR) on a duplex to make a profit. You're far better off knowing if both toilets flush. Later on when the money rolls in, let your accountant explain about the IRR. Perhaps he or she might even agree to do your plumbing when not doing the books.

The Richness of a Riad

My friend Peggy has been very successful in the Victorian rehab business in California for over twenty years, and she has converted many of those homes into income properties. She uses property managers for all of her properties, and she has an excellent accountant who keeps her up to date on her financial health and ensures that all required reporting is properly completed.

Tracking down reliable affordable professionals

Without networking, you're working in a vacuum whenever you hire an attorney, accountant, agent, title company, inspector, or contractor. Other people in your area are fishing the same pool, and they've already scoped out the best fishing holes. Don't waste your time flipping through the phone book for top-notch professionals. Word-of-mouth referrals are the way to go. Real estate agents are in the business of assisting people with all issues related to buying, owning, and selling homes. They often have a fat address book that's packed with valuable contacts for other agents, attorneys, title companies, home inspectors, accountants, and contractors. They know the power of networking and are typically more than willing to recommend people, especially if you tell the people you call who recommended them.

What Is Due Diligence

There's usually no charge for you to perform due diligence, but you'll likely have to hire either a professional inspection company or an accountant (or maybe both), and this expense can run several thousands of dollars. But before you spend any money, we suggest that you follow the tips in the later section, The First Things You Need to Do.

Making due diligence a team effort

When it comes to the financial part of due diligence, we suggest that you be advised by an accountant who has real estate investment experience. Accountants aren't all created equal. Qualify your accountant by verifying that he or she has commercial real estate accounting experience, not just single-family residence accounting experience or general business experience. In some cases, the investment you're considering may be one of your largest. Would you trust the advice of an accountant with little experience in one of your largest financial endeavors ever We didn't think so. By far, the best way to find a qualified accountant is by referral. Call on one of your investment buddies and check out who they're using. And again, make sure that referral has commercial real estate accounting experience.

Look at the propertys numbers

If you're just starting out, we suggest that you get the advice of a real-estate-savvy accountant. Or find someone who has been successful and is willing to show you the basics of number crunching. However, after going through a few deal evaluations, you can probably do this number crunching yourself. Chapter 3 tells you how the experts do it.

Step One Review Disclosures Analyze Financials

The last two earnings releases IR is looking for content and style here. Specifically, is it formatted correctly (not too long or too short, not full of unnecessary quotes) and written properly (simple yet informative, not looking as if a legal team wrote it or an accountant wrote it) Are the appropriate metrics highlighted in a way that is easy for Wall Street to digest Additionally, IR should check what time of day it was released. Companies should schedule both the release and the conference call after market hours. As we discuss in the Delivery section, timing of the release and conference call is critical to minimizing risk.

What an Investor Does

Rich dad chuckled, As I said, the professional investor must think beyond the price of an investment going up or going down. A sophisticated investor reads the numbers to get the true story and begins to see things that the average investor does not see. A sophisticated investor must see the impact of government regulations, tax codes, corporate law, business law, and accounting law. One reason it is hard to find accurate investment information is that to gain a full picture requires financial literacy, an accountant, and an attorney. In other words, you needed two different professionals to get the real picture. The good news is that if you take your time and invest the time to learn the ins and outs of what goes on behind the scenes, you will find investment opportunities and great wealth, wealth that very few people ever find. You will find out the truth about why the rich get richer, and the poor and middle class work harder, pay more in taxes, and get deeper in debt. Once you...

The Unaccredited Private Investor

I spent 24 years with a Fortune 500 chemical corporation, specializing in real estate development, a major business of the firm. I started as a junior accountant of a subsidiary, then left six years ago as vice president in charge of the company's activities. Since then, I have combined investing in a few start-ups with a financial and consulting practice.

Maximize Your Qualifying Income

If your income is complicated by self-employment earnings, prepare explanations. For truly complex situations involving important amounts of money, enlist the aid of your accountant. Potential problems, for example, include tax losses offset by positive cash flow, or strong business profits, yet small wage or salary draws from the business (to minimize your personal income taxes). Many run-of-the-mill loan reps can't effectively understand these issues without guidance or persuasive input from you.

Why Would Anyone Want a Partnership

Much quicker pace than investing by yourself. I've discovered that, in most successful partnerships, the partners will often have very little in common except a strong desire to make money. Sometimes, an accountant will team up with a carpenter or handyperson, a doctor might team up with a contractor or with a schoolteacher with extra hours and mechanical skills. Quite often a real estate agent who can manage property will make a very good partner.

Listing In The United States And London

In the United States, similar to United Kingdom or other markets, the lead manager of the new issue begins by conducting due diligence research and then coordinates the preparation of detailed information about the firm and financial status (the registration statement) to be filed with the Securities and Exchange Commission (SEC). This is done in close coordination with the company, accountant, and counsel. The filing date is the day the investment bank turns in the registration statement to the SEC. Amendments to the registration statement are submitted to the SEC again. If there are no further changes, registration becomes effective.

Costs Of Going Public

Accounting fees are substantial as well. The accountant reviews and verifies the data in the registration statement and issues the comfort letter. These fees do not include audits of the financial statements, which vary depending on the size of the company and the number of years audited. During the lengthy process of preparing the listing of the company, unanticipated costs will crop up. These include extra transportation costs to and from consultants, counsels, accountants, and underwriter meals and entertainment postage and phone

MicrosoftA Simple DCF Example

The DCF valuation analysis that we use estimates expected free cash flow to the firm. Free cash flows are cash amounts that are available to be paid to stockholders. Earnings per share is an accounting measure and an accountant's way of measuring corporate performance. Discounted free cash flows are an investor's way of measuring potential returns to shareholders. DCF is more wallet oriented, hence more meaningful to you unless you happen to be an accountant.

Improving Your Ability To Make More Beneficial Exchanges

3- Don't get hung up on the math of the exchange' First of all, it is not hard. You only have to follow the sequence, as shown in this chapter, to get at the right answers. Much of the time you will have help. When it comes to calculating the tax on the gain, you will have to pass that task on to the client's accountant anyway. The tax examples shown here are only estimates. You will never be able to arrive at the exact tax unless you have considerable knowledge of the client's other income. Whenever you do show a tax consequence, be sure to point out the assumptions you made. Once you have the client's accountant working with you, he or she will do the rest of the calculations. Keep in mind that in math, there are different ways of arriving at the same solution. Don't be quick to tell the accountant that he or she has figured it out wrong, unless you see the calculations and know what assumptions were used.

Making April 15th Your Favorite Day

I've never heard any of my clients or friends say that they were so happy with the way things were going that they were going to pay the government extra in taxes this year. That would be a ludicrous statement, right Yet every year, thousands of people pay more in taxes than necessary. Why is this There could be a number of reasons why. Some people believe that it's their accountant's job to help them save money in taxes, but most tax professionals simply prepare returns. In fact, if you want to save money in taxes, you need to see your accountant before the end of the calendar year, not just when you drop off your tax forms.

Misadventures in Trading

*The Elliott Wave Principle, as it is formally called, was originally developed by R. N. Elliott, an accountant turned market student, Elliott's definitive work on the subject was published in 1946, only two years befors his death, under the rather immodest title Nature's Law-The Secret of the Universe. The application of the theory is unavoidably subjective, with numerous interpretations appearing in scores of volumes. (sol-rce JohnJ. Murphy, Technical Analysis of the Futures Markets, New York Institute of Finance, 1986.)

Figure 126 Adjusting the Mix of Tax Exempt vs Taxable Bonds to Optimize Net Income

Holding any more than approximately 40 percent in taxable bonds pushes the client out of the AMT and provides no benefit. When the clien t holds less than 60 percent in tax-exempt bonds, there eventually comes a point where the AMT no longer applies, he pays an increasingly highe r am o unt of taxes, and his net taxable income continues to drop, as highlighted in the fourth column. Therefore, it is extremely naive for a manager to say, Taxable bonds are a bargain relative to municipals, so let's move the whole portfolio in that direction. As Figure 12.6 shows, the municipal bond manager that works in a trading-room vacuum without taking the client's unique tax profile into account should be app roached with a high degree of caution. This type of modeling does not require a s ophis ticat ed approach but, unfortunately, is all too rare. Each taxable client is different, and the practitioner doing this type of analysis sho uld cons ider expanding the entries under adjusted gross items,...

Types of accounting positions and typical duties

Accountant Manage the monthly accounting process and oversee the fund administrator's net asset value (NAV) computation. Review fund holdings for new trades and changes in fund positions. Maintain a schedule of investments as accounting support. Prepare mid-month and month-end performance estimates. Review management fee and incentive fee calculations. Coordinate annual audit. Review financial statements. Assist with the accounting structure for new deals. Perform due diligence on underlying hedge fund-audited financials. Assist support CFO with special projects. In some hedge funds some or all of the accounting functions are outsourced to dedicated accounting operations speciality firms. Chief financial officer (CFO) Prepare and analyze budgets, monthly financial reporting and forecasts. Participate in preparation of high level analysis and presentations to senior management and Board. Lead discussions with heads of departments and provide value-added recommendations to meet...

Computerized accounting systems

If you only own one property and want to keep your bookkeeping simple, check with your bank to see whether it offers an easy, online accounting system or shop online for a simplified computerized system that is similar to the manual system you enter data just like you write a check manually. Contact Peachtree Business Products located in Atlanta, Georgia, either by phone at (877) 495-9904 or at Peachtree has a simple accounting system that is based on the pegboard system that accountants recommend to clients. When used alone, it offers a simple cash-basis system for smaller clients whose needs are simple and whose knowledge of accounting and of computers is not extensive. You can also contact SAFEGUARD Business Systems at 1-800-909-3611 or There are many software packages on the market. You may decide to use Quick Books or Quicken, but I strongly recommend that you first research software that is specifically for property management,...

Will include 100 of the subsidiarys Ebitda J

As we noted in chapter 9, analysts often try to fix the inconsistency problem by adding back minority interest, which is the accountant's estimate of the value of the 40 of company B that does not belong to company A, to the numerator. The problem, however, is that they should be adding back 40 of the market value of the subsidiary to the numerator if they want to construct a composite enterprise value to EBITDA multiple. We can use the techniques suggested in the last section, including applying a price to

Educational requirements

A US Bachelors degree (or its overseas equivalent) is the minimal educational background for hedge fund accountants. Most funds prefer the undergraduate degree's major to be in Accounting or Finance. If the GPAs are not 3.5 4.0 (or equivalent percentage for schools with different scale ranges) or higher, a plausible explanation for the ranking will be necessary to even be considered. Class grades in core accounting classes must all be A's or B's . A US Certified Public Accountant (CPA) (or its overseas equivalent) is always preferred (and many times is required) as an additional accreditation. A common question asked is if an individual passed their CPA exam on the first sitting as this achievement is another favorable mark for hiring in this field, although some who did not pass all levels the first time through do get hired by hedge funds of all assets under management (AUM) sizes.

Recapture Allows the Seller to Recoup Value

Aston owns 200 acres of farmland outside the city in a growing area. Land nearby has sold for 1,500 per acre. Based on this information, the current value of the land should be 300,000. The tax assessment on the property is 100,000. Aston wants to get some cash to buy a yacht and spend a year or two at leisure. He paid 50 per acre 20 years ago and presently has no use for the farm site. The current market conditions indicate that there are not many buyers ready, willing, or able to buy this land today or, for that matter, in the very near future. Aston had a loss on the sale of a business property that year of around 80,000 and could take a gain without creating a taxable situation that year. His accountant advised him that if he could take advantage of the loss he would be ahead of the game.

What to Look Out for When Buying Foreclosures

For instance, our accountant, Haimy, bought a property in foreclosure last year. Because she had no real estate investing experience and had no idea what she was looking at, we helped her through the process. She wanted to live in a specific area outside of San Francisco. She couldn't afford to buy in 2007 because the houses were selling in the mid- 400,000s. In 2008, a house that had been on the market in 2007 for 400,000 went into foreclosure and was priced to sell at 270,000. After the property was absolutely foreclosed on and the bank had had no bites from anybody, it went into REO status and was listed with a real estate agent who handled REO properties.

LOOP 2 Build and Test Interfaces

Loop 2 integrates the trading investment algorithms (i.e., the business logic tier) with external software components and the user interfaces. Most of these external software components have been purchased from vendors in Stage 2 and the product team is responsible for ensuring that COTS products conform to the specified requirements. External components include databases, potentially an optimization engine, and execution, risk, and accounting software. Integration into the existing technological environment should already be well understood the data dictionary, data maps, and data flow maps created in Stage 2 should facilitate the integration process.

Should You Incorporate

Most attorneys and accountants recommend that real estate investors open a Limited Liability Company, which is a type of corporation. There are also C-corporations, S-corporations, partnerships, limited partnerships, and sole proprietorships. Remember, whatever business you're involved in and whatever structure It's important to meet with your accountant as well as your attorney when deciding on corporations because the tax implications vary for each of these entities. Do you want to be taxed as an individual, as a partnership, as a corporation I suggest you meet with a qualified accountant to determine which one would be best for you in your particular circumstances.

Investment Bankers After 1873

Pierpont did not immediately shed himself of his proclivity for what Carosso (1970 21) characterizes as 'dubious enterprises'. This may explain the decision in 1864 to form Dabney, Morgan & Co., with the stabilizing influence of Charles H. Dabney, an experienced former partner (and also the accountant) of Duncan, Sherman. In the same year, Peabody's partnership with JS Morgan ended. Peabody had already retired from the business the London firm continued as JS Morgan & Co.

Accounting And Control

Perhaps the most important job of any accountant is control. Chapter 11 describes risk management as it pertains to hedge funds, but the accounting records, the accountants, and the auditors have a role in corporate control that differs somewhat from risk management, which focuses on position risks, financing risks, and counterparty risks. Accountants are the first line of defense against loss of control. The accounting process must assure that all tickets have been written. The accountants should monitor trading to ensure that all trades are authorized and consistent with trading limits. The accountants are responsible for making sure that positions are fairly valued. These valuations are important to investors entering and ex Accountants should make fair allocations. Traders have no concern over costs that are not allocated. For example, if commission expenses or financing costs are not allocated, traders are tempted to enter into uneconomic trades that nevertheless show up as...

Its Up to You to Nahe It Happen

Y Spend Day 24 considering whether it's time to incorporate. Meet with a trained professional to determine the best entity for your business (for instance, corporation, sub-chapter S corporation, LLC, etc.). If you own rental property, consider establishing another LLC for the management of the property, which is separate from the ownership. If you have other businesses or wealth, consider segregating those assets and activities as well. Meet with your attorney and accountant to find out which entities and taxation systems are best for your situation.

Allocation Of Gains And Losseslayered Allocation

Partnerships and other entities that are flow-through tax entities must report income items to investors as if they hold proportional amounts of the business as a sole proprietorship. For most income items, this is relatively straightforward. If an expense is incurred in a month, it is booked in the same month that investors received the benefit of that expense. In the preceding example, accrual accounting may allow the accountant to time the recognition of the expense to match the benefits of the expense to the cash payment.

Six Basic Rules to Follow When Negotiating with Property Owners

Rule 5 Never negotiate with people who do not have the authority to say yes. In other words, do not waste your valuable time trying to negotiate a real estate option agreement through a third party, such as an attorney, accountant, or real estate broker, who is acting only as an intermediary. Instead, find out right upfront before negotiations begin whether the person that you are dealing with has the authority to make a final decision and say yes. This is especially true when dealing with married couples and people with so-called partners. If the person that you begin negotiations with claims to have a spouse or partner, tell him or her that the only way that you will continue negotiations is if you can sit down face-to-face with both of them. The last thing that you want to happen during negotiations is to be involved in a situation where the person you are dealing with has to go to a higher authority for approval.

Adr Structure And Issuance

To establish a sponsored ADR program (Figure 17.1), the Chinese company selects a team of accountants, lawyers, an investor relations firm, investment bankers, and a financial printer. The independent accountant offers expertise in international offering and U.S. capital markets. The legal counsel advises on U.S. securities regulations and related matters. In selecting an investor relations firm, it is wise to seek an international firm with experience in advising and assisting non-U.S. companies. The investor relations firm prepares publicity strategy for the listing event. The appointment of an investment bank with appropriate transaction experience, sector and industry knowledge, and distribution capabilities is essential to a successful program. Investment bank's aftermarket support is a key element as well. The financial printer plays an important role in the process because it manages the creation of the confidential document, SEC filings, printing, and distribution. Accountants...

Advantages and Disadvantages of Selling a Property

Keep in mind that the above method does not take into account the potential that other elements need to be included, such as a home office that has been depreciated or other costs and expenses that may change the actual tax basis of the home. As this property is a home, you get no benefit from the loss. However, if prior to the sale you have acquired (via purchase or lease) a new residence, and have converted your home into (for IRS purposes) an investment income property by renting it out, you may have the right to deduct any loss from other capital gains during that period of time. It is possible that by simply going through the steps to rent the home out, such as turning it over to a real estate agent or hiring a property manager, you may establish your intention. Naturally, check with your accountant and lawyer prior to making any such commitment.

Limited Partnership Taxes

Assess each of your funds of funds' net after-tax performances, found on their previous years' K-1s. You should do this with the help of your accountant. Some funds tend to be more tax efficient than others. Some funds have tax equivalents that surpass ordinary income or short-term capital gains rates. Some funds have a tremendous amount of their deductions written in Schedule A, which is not deductible for a high-income investor and can seriously degrade the after-tax gains.

Tapping into growing markets Hot spots

I had a Realtor friend tell me that she herself is purchasing brand-new properties in a new subdivision during the first phase, and then selling them after all the houses are built. In most cases, if you get in a hot market area early on, by the time the property is built and move-in ready, you have made money and can turn around and sell it. Be sure to know the short-term capital gains rules before you begin doing this. Check with your accountant. Don't be afraid to invest in professional services and hire the best to assist you through the process. You should surround yourself with a good attorney, accountant, professional property manager, banker or mortgage broker and a reputable 1031 exchange company, and even a good handyman or contractor (see Chapter 1). There is nothing worse than purchasing rental property, owning the property for a few years, selling it, and finding out during your tax appointment that you did not handle the transaction correctly and must pay a large sum of...

Weighing the pros with the cons

Perhaps the biggest headache of DRPs is the need to keep good records. Keep all your statements together and use a good spreadsheet program or accounting program if you plan on doing a lot of DRP investing. These records will become especially important at tax time, when you have to report any subsequent gains or losses from stock sales. Because capital gains taxes can be complicated as you sort out short term versus long term, DRP calculations can be a nightmare without good record keeping.

Software Accounting Ioi 269

Some software firms have managed to create strong brands that deter competitors. For example, Intuit's QuickBooks and TurboTax are two of the most well-known names in retail software. When people think of small business or tax software, they think of Intuit. Despite the fact that people come into contact with software every day, this moat is rare because the majority of software has very little consumer appeal.

Pitfalls in Dealing with Zero Coupon Debt The biggest pitfall

You may discover that you will have a tax disadvantage taking back a seller a second-party zero-coupon bond. Review your tax circumstance with an accountant prior to accepting any zero-coupon mortgage when you sell a property. You may discover you have a tax to pay that is greater than your cash down.

Advantages in Split Funding on Closings at the End of the

Split funding often works to the sellers advantage when it allows him or her to divide taxable funds over two separate tax years. If you discover that it is likely that you will close near the end of the sellers tax year, you can use this to your advantage. Keep in mind that the IRS allows you to establish tax years ends other than December 31. If you were going to close around August 31 and you discover that the seller's year-end is October 31, you might be able to show the seller the advantage of splitting the money into two or more taxable years. Under the IRS provisions for reporting capital gains or earned income on an installment sale basis, it is possible to spread that income over more than one taxable year, which may reduce the overall tax by holding your tax rate at lower levels. This is particularly important if you have multiple sales in the same year or tax period. One word of caution If you plan to use the installment provisions of the tax code to...

Focus on Types of Investments That Align with Your Strengths

Decide what to do as an investor and realize that you can't do it all. Do you want to be a short-term investor and rehab properties or do want to be a long-term investor Have heart-to-heart talks with people who know you well. They could be your spouse or significant other, accountant, banker, and best friend. Ask them to be honest with you and openly discuss your strengths and weaknesses. Owning your own business isn't for everyone. If you've always worked for someone else, being your own boss sounds attractive. In some respects, this isn't quite the truth. Being your own boss means being an accountant, bookkeeper, stock clerk, receptionist, and office manager all in one. You have to deal with tax returns, payroll, office supplies, customer service, bills, and all the other hassles that come with a business.

Issue 13 Minimize Your Tax Exposure

The first thing you want to do is keep a detailed and comprehensive accounting of all your expenses, including the costs you incur in lead generation and property evaluation. Almost everything you do during your acquisitions (inspections, finder's fees, real estate commissions, etc.) represents costs you can use to offset your rental income. Most of those costs can be recaptured even years after they were incurred, at the time when you have begun to achieve positive cash flow. You certainly need to keep track of all your operating expenses while you own the properties. In addition, you can make property repairs and improvements, especially those which add value to the investment, and these expenses are also deductible against current or future income. Beyond all this you can depreciate the property in fact, the government requires you to. It is well worth the expense to retain a great tax accountant who specializes in real estate investment. This person will be a key member of your...

Evaluate property performance and get rid of the duds

When you sit down in May to evaluate policies, also evaluate the performance of each of your properties using the same analyses as when you decided to purchase. Compare returns on investment, look at vacancy rates, and obtain information from your Realtor about comparative properties for sale. Meet with your accountant to discuss your tax status and how your investments will improve your position. Is your property producing as it should or would it be wise to sell or exchange it Always treat your rentals as a business and make good business decisions. Some landlords get personally attached to the properties and lose sight of the bigger picture of the investment.

The Organization of a Mutual Fund

The investment adviser manages the fund's portfolio according to the objectives and policies described in the fund's prospectus. The principal underwriter sells fund shares, either directly to the public or through other firms like broker-dealers. The administrator oversees the performance of other companies that provide services to the fund and ensures that the fund's operations comply with federal requirements. The transfer agent executes shareholder transactions, maintains records of transactions and other shareholder account activity, and sends account statements and other documents to shareholders. The custodian holds the fund's assets, maintaining them separately to protect shareholder interests. The independent public accountant certifies the fund's financial statements.

Documenting income and expenses

As you add rental units or commercial properties, the accounting becomes much more complex and the recordkeeping more critical. That's when you must seriously consider hiring a property manager with good recordkeeping and accounting procedures who will create detailed monthly reporting that can be given to your accountant for tax planning and reporting. or are brand new, rather than routine maintenance or a repair. Your accountant is usually instrumental in providing guidance as to which items can be expensed versus the items that must be capitalized. your taxable income by the full cost incurred but by a prorated amount over several years. Your accountant will generate depreciation or cost recovery schedules indicating the amount that can be deducted each year. Also, your accountant can keep you informed about changes in the federal tax code that affect depreciation deductions of certain capital expense items.

Doing Your Accounting Manually

Most rental property owners begin their real estate investing with a single rental home or condo. At this level, the accounting is extremely simple and can be done manually with pencil and paper in a simple spiral notebook or an accountant's columnar pad. But when you expand to multiple rental units or commercial properties, you need to look for better and more efficient systems that are geared to the specific needs of rental property accounting. When you own several properties, consider using a computer with a spreadsheet or general accounting software program. Spreadsheet programs, such as Microsoft Excel, can handle a few rental properties. Somewhat better are the general business accounting packages, such as the entry-level Quicken, and the more advanced QuickBooks or Peachtree Accounting. These programs can handle and streamline all the basic accounting requirements of managing a handful of rental properties.

Funny Accounting No Laughing Here

Throughout this book, I discuss the topic of accounting as an important way to see how well (or how poorly) a company is doing. Understanding a company's balance sheet and income statement, and making a simple comparison of these documents over a period of several years, can give you great insights into the company's prospects. You don't have to be an accountant to grasp key concepts. Enron is a perfect example of how you can avoid a stock investing disaster with some rudimentary knowledge of accounting.

Encouraging the Homeowners to Contact Their Lenders and Soon

You may be able to act as the mediator between the homeowners and their lenders, but you'll need signed permission to do so. For details and a sample release you can request that the homeowners sign, refer to Chapter 9. Don't cross the line of giving advice that you're not qualified to offer. Tell the homeowners and repeat it often that you're not an attorney or an accountant.

Step 1 Determine the net sates proceeds

The net sales proceeds are the gross sales price minus the selling expenses (see Table 18-2). The selling expenses are all costs incurred to complete the sales transaction such as real estate commissions, attorney and accountant fees, settlement and escrow fees, title insurance, and other closing costs.

Stage 2 Protect Your Future

Third, protect your future by insuring it in key areas. You will need adequate disability insurance to protect a minimum lifestyle. You will need adequate life insurance to help support your family and pay any estate taxes. You will need the best affordable health insurance for you and your family. You will need adequate replacement value and liability insurance for your home, car, and personal property. If you get your insurance agent, accountant, and estate planning attorney together, you should be able to figure all this out in about an hour.

What to Do with Too Much Money

If you want to be rich, you must have a plan on how to make a lot of money and you must also have a plan on what to do with that money before you make it. If you do not have a plan on what to do with it before you make it, you will often lose it faster than you made it. One of the reasons he had me study real estate investing was so that I would understand how to invest in real estate before I had a lot of money. Today when my accountant calls and says, You have too much money. You need to buy more investments, I already know where to move my money, the corporate structures to use, and what to buy with that money. I call my broker and buy more real estate. If I buy paper assets, I often call my financial planner and buy an insurance product, which then buys my stocks, bonds, or mutual funds. In other words, the insurance industry produces special insurance products for rich people who are business owners. When a business buys insurance, it is an expense to the company and it often...

Best to Hire a Properly Licensed Professional to Prepare Your Tax Returns

Unless you are a certified public accountant, board-certified tax attorney, or an enrolled agent, you should hire a tax professional who is licensed to represent taxpayers before all administrative levels of the IRS to prepare your tax returns. And yes, I am very well aware of all of the inexpensive off-the-shelf tax preparation software programs that are available today. However, here is an excellent reason I very strongly recommend that real estate investors never, ever use any of these software programs to prepare their tax returns Who from the tax preparation software conglomerate is going to represent you in front of the IRS when you're audited because there was an unreported glitch in their software program that flubbed up your tax return Answer Absolutely no one That is because you are on your own when you rely on XYZ tax preparation software to prepare your tax return. This is not the case when you hire a properly licensed tax professional to prepare your tax returns. For...

Figure 187 Using Best and Worst Case Approach

Cess in conjunction with the after-tax efficient solution from the optimiza-tio n software, but it is a cumbersome process at best and subject to human erro r b ecaus e o f the vol ume of calculations involved. When the analysis b eco mes this complex, coordination with the members of the qualified triumvirate becomes more critical. The tax characteristics of each trust should be coordinated with both the accountant and the estate attorney. More important, if the estate attorney does not understand the concept of tax-aware positioning of assets, you will waste a lot of time running ass et-lo catio n simulations and will have difficulty achieving consensus on n m n

Arriving As a Commercial Appraiser

If you're in the process of loan approval for purchase or refinance for your strip center, office building, apartment complex, or land, the appraiser holds the key to your real estate value. Appraisers systematically analyze and compare properties to estimate the value of yours. Their findings are used for tax assessment, insurable value, paper value for your accountant, divorce, partnership dissolutions, expert witness testimony, condemnation, and of course, investment value for we investors.

Chinas Law on Chinese Foreign Equity Joint Ventures

Article 6 An equity joint venture shall establish a board of directors with a size and composition stipulated in the contract and the articles of association after consultation between the parties to the venture and each party to the venture shall appoint and replace its own director(s). The chairman and the vice-chairman of the board shall be determined through consultation between the parties to the venture or elected by the board. Where a director appointed by the Chinese party or the foreign party serves as chairman, a director appointed by the other party shall serve as vice-chairman. The board of directors shall decide important issues concerning the equity joint venture based on the principle of equality and mutual benefit. The function and powers of the board of directors shall be to discuss and decide, pursuant to the provisions of the articles of association of the equity joint venture, all important issues concerning the venture, namely the development plan of the...

Refinance or Sell and Defer Again

Or you can sell the property and use the 1031 tax-deferred exchange to keep your equity working. Besides excess or lazy equity, some owners prefer the tax-deferred exchange option because they can enhance their use of depreciation to shelter their real estate income. A competent accountant or tax advisor can assist you in making the right choice between refinancing and a tax-deferred exchange. See Chapter 18 for more on tax-deferred exchanges.

The Elusive Number Called Earnings

If an accountant reported the economist's definition of earnings and it was accurate, the analyst's job of valuing the asset or firm would be over. He or she could simply use the timate of the change in the value of the asset or firm together with the old selling price to determine the new price. However, there is circularity. The best estimate of the change in the value of the asset is, of course, the actual change in the value of the asset. If the actual change is determined by the accountant's estimate, then how can the actual change be used as the estimate The accountant can still look at the fundamental characteristics of the firm and try to estimate the change in value. Similarly, the accountant could just try to report the income earned in the single period and leave the estimating of the change in value to others. The accounting profession pursues a policy somewhere in between. The number the accountant calls earnings is a mixture of the income earned and an attempt to measure...

Rebalancing Your Portfolio

If one of the asset classes is facing large losses, the investor can sell the ETF and buy a similar ETF as long as it is based on another index. Switching out two highly correlated ETFs like SPY and VTI is an example. A March 2008 article in Wealth Manager Magazine estimated the investor could save 0.5 to 1.5 with this method. (Financial advisors could justify their entire fee by implementing this simple tax strategy.) As always, consult your accountant before executing this strategy. Table 4.16 is an example of easily substitutable ETFs that are based on different indexes.

Management Accounting Centerpiece The Profit Model

Model For Final Accounts

Suppose you're the new president of the company that has been used as the main example for studying external financial statements throughout the previous chapters. You ask me, the chief accountant and controller of the business, to prepare a profit report for your decision-making, planning, and control purposes.

Millionaire Real Estate Investors

Do you hate infomercials Think people never buy that stuff Or if they do, never do anything with it Joe Arlt will tell you different. The former certified public accountant with, in his words, a fancy Ivy League MBA could be the poster child for late-night infomercials. He changed his life after watching one by real estate investor John Burley. Arlt's interest was piqued enough that he took one of Burley's five-day boot camps in January 1996.

Deep Pocket Investor

In my career I've been an accountant, a lawyer, a consultant, a CFO of high-technology start-up companies, and most recently I'm president of a software company. I have been an active individual investor, and over the past 15 years have done 15 investments, roughly one a year, although it's more a matter of accumulating enough money to make the next investment than it is an ability to accommodate them. The rate of investment seems closely related to my earnings from other things. These 15 investments ranged in amount from 10,000 to 90,000. The average is about 50,000 to 100,000 (Exhibit 7.3).

The contributors

Neil Cotter has been Group Treasurer of LogicaCMG (formerly Logica) since 1999. LogicaCMG is one of the largest IT services businesses in Europe with over 21,000 employees. Prior to this he was responsible for bank relationship and funding management for ICI. Neil was originally employed as an IT consultant before moving into corporate finance and, latterly, treasury. He retains a special interest in technology and its interaction with the corporate treasurer. Neil is a qualified accountant and treasurer.

Stock Market Profits

After concluding a number of jobs, in various bank trust departments doing fundamental analysis, I moved to a major mutual fund complex. I was chief accountant there for a number of years and eventually I became a portfolio manager. It was during this time period when I got to know the side of the street known as the buy side. 1 was a portfolio manager in charge of several medium size mutual funds aggregating over S100.000,000.1 was quite successful at this, having had one fund that was up over 50 two years consecutively. This was quite an accomplishment if you understand that with a diversified portfolio of 40 or 50 different stocks, in order to have an overall race of return of over 50 you might need 10 or 12 of those stocks to triple or quadruple to offset the other stocks that go nowhere and the few that go down. My success at trading as a portfolio manager was due to my switch out of fundamental analysis and into technical analysis. It was during this time that I learned many of...

State tax

Some states don't have a state tax, which means you're not required to do a state tax return. Check with the state government where your property is located to find out about its taxes. Your accountant may have an office in that state or may have a recommendation of whom to contact to obtain the latest information. Many states have a transfer tax and or a revenue tax, and that accounts for the bulk of state real estate taxes. When you do your tax return and are in a state that has this type of taxation, your accountant can prepare a form that displays the gross and net revenue generated by your properties and calculate what is due.

Federal tax

There are many ways to structure the set up of your properties. You can have a corporation, partnership, an LLC, trust, and so on. A good accountant will advise you based on your situation. For example, if your rental property is run as a corporation, your accountant may advise you not to have any income in your account at the end of each year to avoid paying a high rate of corporate tax. (You don't want your corporation to be double-taxed.) You can withdraw the money as income, spend it on improvements to your building, or pay bills. Your accountant knows what is the best for your business.

Property tax

Some localities also have personal property taxes. So if you leave a refrigerator, washer dryer, or other furniture and fixtures in the property, you will have to report these as well. Usually, the best source is to contact the city or county government for a full list of taxes assessed or ask your accountant.


Depreciation is allowed only on your building, not on the land. The amount of deprecation varies, depending on the type of property and when it was purchased. A good accountant can ensure you get the proper depreciation. This is one expense you want to be sure to write off. Hiring an Accountant Hiring a good tax accountant is an important part of the whole picture. You want an accountant who can assist and direct you to maintain good records in order to comply with federal, state, and local tax laws. The accountant also needs to be familiar with real estate law and have a good understanding of all rules and regulations. What does an accountant do expectancy for certain items are. Don't guess or decide on your own how long the asset should last. Talk to your accountant.


One of the biggest mistakes people make in any business, especially real estate investing, is trying to do everything themselves. Are you prepared to be a finance expert, a real estate acquisition expert, a contractor, a property manager, an accountant, a bookkeeper, and an eviction agent Are you an attorney or an appraiser You are wise to get to know those who can help.


All of the apartments have been remodeled within the last 18 months, and the owner's accountant advised him that the work done must be classified as capital improvements, not as expenses. Thus, the costs are not listed as current repairs. The actual repairs

Stock Index Futures

For day or swing traders following the stock market, the futures market offers an advantage over stocks from tax liability perspective. Always check with your accountant but, generally speaking, profits generated in a futures account are taxed at a rate significantly lower than that for a stock account.


Most brokers have excellent documentation to protect both them and you. Lawyers are expensive, but there are a lot of them You may wish to have your accountant or lawyer review the firm's documentation if you don't understand something. But don't expect to get the broker-dealer to make any changes in it for you. Keep hard copies of all documentation and especially those requiring your signature.

Diving In

She decides to have the income automatically credited to her bank account in New Zealand on a net basis, and asks the property manager to be in charge of filing her New Zealand tax returns. Barbara's U.S. accountant receives statements from her New Zealand bank and property manager to complete her U.S. income tax returns, because she is taxed in the United States on her worldwide income. However, she plans to take advantage of the U.S. tax laws that allow for the application of tax credits against taxes paid in foreign jurisdictions.

Performance Measures

Of donors, and the success of community service programs. Other boards, however, could not articulate a set of performance goals. For the boards with performance goals, the members had a better understanding of the information they needed to perform their oversight role and of how to use that information. For the boards that were unable to articulate performance goals, the members typically monitored them based on their personal skills. For example, board members who were lawyers in their professional lives considered the legal issues and accountant members considered the financial issues. These members gathered information they needed to fulfill these limited roles but had little knowledge of the performance of the organization outside these areas. In some cases, and even though they believed that they were fully informed, the trustees were not even aware of the programs operated by the organization. They were unaware of these programs because they did not involve issues related to...

Adding a Tax Advisor

The role of your accountant is to evaluate and recommend investments and tax strategies that maximize your financial position. Remember the old adage that says, It's not what you make that matters but what you keep. A good tax advisor with property investment experience can tell you whether your best real estate investment is the direct ownership of properties or perhaps owning triple net leased properties with lower returns but fewer management headaches. An accountant can inform his clients as to whether they can still meet the active participation required for certain tax benefits while hiring a property management company to handle the bulk of the day-to-day tenant landlord issues.

The Basics

I am not an accountant, yet I have attended several classes on accounting. In most of those classes, what struck me was how the instructors focused on one of the documents, but not the relationship between the two documents. In other words, the instructors never explained why one document was important to the other.


I will only discuss the topic of having a corporation to do your trading within only briefly for three reasons. (1) I am not qualified to offer you accounting, or legal advice (so for legal reasons that is my disclaimer), especially since (2) I have no idea where you live, and each country and sub-territory (State, Province, etc.) has different laws. (3) I just want to introduce this subject and encourage you to consult with a competent accountant and or lawyer in your jurisdiction. You can do a lot of preliminary research on the Internet to learn about advantageous places to form your corporation (i.e. if you are an American then consider a Nevada corporation which is better than Delaware for corporate taxes, but talk to a smart accountant for their advice). Spend some time thinking about this important decision rather than just impulsively getting a corporation anywhere from anyone. Big tip Seriously talk with an accountant (or possibly an appropriate lawyer if you have some serious...

Good Records

An off-the-shelf accounting program such as QuickBooks is good for this, particularly because of the ability to attribute expenses to specific properties. The key to keeping good records is to start by setting up simple procedures. A good CPA or bookkeeper can help you set up your accounting so your records are clean and follow generally accepted accounting principles. You can also purchase real estate software packages and models that work with QuickBooks such as the KISS Guide to Real Estate Accounting available from Legalwiz Publications ( KISS).

Earnings Explosions

Many investors act on the basis of reported earnings, even when the earnings might exist only in the imagination of some creative accountant, or be of a merely temporary nature. Many of these investment errors are caused by the fact that companies report their quarterly earnings to the financial press, where the information is printed and widely distributed. But the quarterly figures are unaudited. Moreover, no details are given that might help investors to evaluate the figures and determine whether a reported earnings increase indicates a new trend or merely a temporary situation. The most creative accountants have mastered the

Cash Out

Because they are advised by trusted individuals not to get involved with an exchange. There are people who do not understand exchanges, or the mechanics of dealing with them. Those people may include your lawyer, or accountant or real estate agent or broker. They may have had a bad experience themselves, and honestly believe they are helping you avoid the same mistake they made in the past. In fact, they may have had a truly horrible situation occur to them or a client of theirs. That may give you some insight as to how much credibility you can give to their ability to advise you. Nonetheless, it will not be the end of the world if you skip the exchange proposed to you. But don't miss something that may be good for you without seeking a second opinion.

New Tax Basis

Any other property you might be considering. Make sure they understand what you want, and that they are experienced in all of the investment techniques covered in this book. Recognize that when your lawyer or CPA gives you quick negative advice about using a creative technique it might be because he or she are not well versed in the field. It has been my sad experience that many lawyers and accountant types are not as up-to-date on some of these creative strategies as they should be. It is a simple fact of life that when an advisor does not know or understand something, they are likely to advise against it. I can assure you that some very smart lawyers who were also owners of the property in question were giving themselves the wrong advice.