Vestnomics Wealth Management, LLC
Russ Blahetka, CFP® is the founder and Managing Director of Vestnomics Wealth Management, an independent, fee-only, Registered Investment Advisory firm serving individuals, families, and self employed individuals. He founded Vestnomics on the simple concept that everyone has the right to achieve their financial goals. Prior to this, he was a Financial Advisor and District manager at Waddell & Reed.
At Vestnomics the focus is on the human side of finance. Together, Russ and his team cut through the jargon and media noise and focus on the personal, human aspect of their client's finances. Vestnomics is a personal, economic advisor. The fee structure for the firm is transparent and reasonable. They offer hourly or flat fee for financial planning and also offer assets under management based fees. Russ' clients receive regular communications on their portfolio's performance as well as timely updates of market conditions. All advisors at Vestnomics are bound by the CFP® Board's code of ethics. This means Russ and his team are bound by the "best interest" standard, not the less strict "suitability" standard.
In addition to helping clients towards their goals, Russ teaches "Investments in Personal Financial Planning" at the UC Santa Cruz Extension. Additionally, he teaches "Financial Statement Analysis" in the extension's CPA and Business Administration program. Outside of his professional endeavors, he can be found taking lessons in an Evektor Sports Star working towards his Sport Pilot License. Furthermore, he serves on the board for Title IX Media, an organization which promotes gender equality in sports, and the Academy of Finance at Independence High School.
DBA, International Business, Argosy University
MBA, Global Business, San Jose State University
Assets Under Management:
Information contained in this posting is informational and educational in nature. Do NOT take information provided here as legal, tax, or investment advice pertinent to your specific situation. Any information posted here is not a solicitation of any type, nor does it constitute an opinion on the appropriateness of any investment either in general or specific to the reader's situation. Do NOT act on any information or answer without obtaining legal, tax, and/or investment advice specific to your situation from an appropriately licensed professional.
I realize this may seem like a straight forward question, but it does have several moving parts. Typically, the lower the required cash outflows for a given rent the better your return. Based on the information provided, I am assuming you do not plan to invest in a REIT or other type of fund, but rather some type of rental property (residential or commercial). If this is the case, there are considerations beyond just the loan. However, for purposes of your question and assuming you are discussing residential property (commercial property has its own considerations), here are a few things to consider :
- If you take out an FHA loan (read about potential restrictions here), and only put 3.5% down, you will need to add PMI (private mortgage insurance) to your calculations. This will afect your return. You can remove it after 11 years or if the value goes up (or you pay down the loan) enough for 80% LTV (loan to value) and you refinance.
- The same will be true if you put less than 20% down on a property. You will have to carry PMI until you can qualify to remove it (80% LTV).
- Will the choice of loan make the property cash flow negative or cash flow positive? If you are not cash flow positive from the start, you are essentially taking a loss until the situation corrects itself. That loss will affect the total return.
- Regardless of the loan, in what shape is the property/building (one of those pesky "other considerations)?
There are a number of rental property calculators on the net, for example, this one. There are also a number of mortgage calculators. The shortfall of these on line calculators is they sometimes do not take into account things such as PMI amounts, vacancy rates, etc. You may want to make an appointment with en experienced advisor or other professional to help you with the details.
A Goods and Services Tax (GST) is typically a tax based on the sale of a a good or service. It is similar, in a general concept, to a sales tax levied in many of the states in the USA or Value Added Tax (VAT) in other countries. Basically, when a company buys a good at wholesale, the wholesaler would charge GST. However, when the company subsequently sells the product, it collects GST based on the sale price. The company can then claim a credit for the tax it paid to the wholesaler.
Example: Wholesaler sells Product A to Retailer for 1,000Rs. Part of that cost is GST. Retailer sells Product A to customer for 2,000Rs. Part of that cost is GST. However, the retailer can claim the GST portion paid to the wholesaler and remit the remainder.
In the US, if I am a business, I typically do not pay sales taxes on an item I plan to resell. When a customer buys the product, the customer pays sales tax based on the price purchased (this is a simplified version- there are exceptions such as in California one must pay sales tax on the value of the product, not on the discounted price). However, in a Value Added regime, which is under consideration in India (unless it is already in place,) taxes would be levied at each phase of product or service delivery. This could significantly increase the costs of goods and react a level of bureaucratic red tape at the same level the government is trying to relieve.
If the government sticks to its original reason for proposing such a regime, namely to harmonize a very fractured tax system and to improve the free movement of goods from one state to another without delay trying to harmonize tax payments, then this could be a good thing. Imagine the delays, costs, opportunities for graft, and potential inventory shrinkage if goods from California had to stop at each state border on their way to Illinois.
However, if such a system goes into effect, some states in India may see their revenues decrease and may decide to put in an additional tax. For example, in Canada, there is GST (Goods and Services Tax) as well as PST (Provincial Sales Tax). The overall effect could be higher costs and continued tax system complexity.
In my humble opinion, it may be easier to address the basic structural issues within the country. For example, why is crossing from one state to another akin to crossing from one country to another. Perhaps a set of interstate commerce guidelines would better serve the country.
This is an extremely simplified Pros/Cons discussion. It is more than a revenue/cost issue, but would upset political power bases and strikes directly into the concept of individual state sovereignty.
Pros: Tax harmonization, simplified tax collection, simplified movement of goods and services within the country.
Cons: based on the proposed rate, could actually be more costly to businesses and consumers along the supply chain, could force an additional layer of taxation by states above the GST levels, and additional opportunities for individuals' personal "income enhancement."
I'd like to add my $0.02 worth.
I teach in a Certified Financial Planner(tm) program. As mentioned, the exam is difficult. The sheer volume of material prospective CFPs(r) need to learn is impressive. Most students take between 18 and 30 months to complete the course work, then several months to prep for the exam.
On occasion, I have been asked what it takes to get a "CFP(r) license". The CFP(r) is not a license, but a designation. It requires education, examination, experience (typically over two years) and ethics to be able to use the the CFP(r) mark.
That said, there are a number of other designations that are very worthwhile, such as the CFA (Chartered Financial Analyst), Chartered Financial Consultant (ChFC), Chartered Life Underwriter (CLU), and Personal Financial Specialist (PFS).
There are a number of questionable designations as well. FINRA provides a list of designations, their qualification requirements, etc. at their website. You can view the list at https://www.finra.org/investors/professional-designations It lists over 160 designations. No wonder consumers get confused!
As its website stipulates, FINRA does NOT approve or endorse any professional credential or designation. However, it does have a page for what are called "Accredited Designations" at https://www.finra.org/investors/accredited-designations. Here you will find a list of designations accredited by the American National Standards Institute and the National Commission for Certifying Agencies.
Please take a look at http://themortgagereports.com/16750/fannie-mae-waiting-period-bankruptcy-short-sale-foreclosure. In March of 2016, it seems Fannie Mae reduced the mandatory waiting period from four years to two years. You may want to contact your bank or an independent mortgage broker in your area for more information. If the program is not right for you, there could be other programs available that may provide the financing you seek.
Eduardo is correct on all the technical reasons why a fund may be recommended over stocks. I would like to address your concern over fees.
If you wanted exposure to the S&P 500, for example, you could buy one share of SPY or IVV and pay $5-$10 in trading costs. If you were to manage your own set of stocks, let's say only 25 companies, your initial cost would be $125-$250 in trading fees. You would then need to manage the portfolio as Eduardo mentions in his post.
Going forward, if you want to change the risk profile of the portfolio, reinvest dividends, or invest new money, you then need to spend money on trading costs. On a rebalance, where you may need to sell something to buy something else, you would need to pay a transaction fee for selling the stock and then to buy into the other stock. Without the economies of scale, this can be costlier than using funds (especially Exchange Traded Funds).
On the double taxation, mutual funds do not pay taxes on the distributions. So, any funds sent to you are taxed to you, not the fund company. However, and this is true whether you use an open end mutual fund, an ETF, or individual stocks, you must keep track of your basis (the actual cost you paid for the fund). If you are not careful, and do not track it properly, you could be paying taxes on a lower basis than you should. This is especially true if you have your distributions and capital gains reinvested in the fund. Here is a web site you can reference for more details. https://www.soundmindinvesting.com/articles/view/avoid-double-taxation-when-calculating-mutual-fund-gains