Business

                Nathaniel Sillin

Practical money matters by Nathaniel Sillin

MAYBE your financial house is in order. Your debt is manageable or paid off. You have an emergency fund and now you’re looking for ways to grow your wealth. Or, perhaps you’re planning ahead by learning about different investment options. Have you considered becoming a landlord?
Rent prices tend to rise over time, providing an inflation-protected income into your retirement years. You also might be able to cash in big later if the unit’s value increases. It doesn’t always work out that way, though. Some landlords wind up with a trashed property after evicting a tenant or lose their savings in a natural disaster.
In between the extremes of easy, hands-off income and total ruin are the everyday concerns, benefits and risks that most landlords face.
Risks. Investment-property mortgages tend to be a little more difficult and costly to secure than mortgages for your primary residence. It can also be harder to take cash out of investment properties – either with a cash-out refinance or a home-equity line of credit. In other words, you might not have access to your money during an emergency.
Owning a rental property outright can be risky as well. Especially if you’re placing a significant amount of your savings in a single investment, the lack of diversification could put you in a precarious situation.
Those aren’t the only risks you could face when owning a rental.
• Tenants. Finding and keeping good tenants is one all-important risk. Landlords learn from experience that it’s worth leaving their rental empty for a month or two rather than pay for an eviction or expensive repairs later. You can pay for professional tenant-screening reports or credit reports and call applicants’ references before offering a lease.
• Expenses. Between taxes, insurance, repairs, maintenance and mortgage payments, the monthly and one-off costs of rental property can quickly stack up. Some landlords lose money because their rental income doesn’t cover their expenses but they won’t be able to attract tenants if they raise it. If the housing and rental markets drop, you could be stuck losing money each month or selling the property at a loss.
• Management. The time or cost of managing a rental property can be significant. Becoming a landlord is often far from a hands-off job. When the phone rings in the middle of the night because the roof is leaking, you’ll need to figure out how to solve the problem. You might be able to hire a property-management company to take on this work for you but you could be charged about 8 to 12 per cent of your rental income or a flat monthly fee.
Even with the risks involved, there are countless examples of successful landlords. Many find the experience so rewarding that they purchase additional investment properties.
Income calculation. You must set yourself up for financial success. What separates the successful and sorrow-filled landlords? Luck certainly comes into play but you can also take steps to start on the right foot.
When buying an investment property, try to determine its capitalization rate, its estimated annual return, before making an offer. To calculate the capitalization rate, divide the annual net income by the property’s purchase price.
Your net income will be your rental income, which you can approximate based on rental prices for similar properties, minus your costs, such as maintenance, upgrades, vacancies and emergencies. You might need to consult an accountant to understand how your new tax situation can affect your costs.
Capitalization rates tend to change depending on the area and type of property. But, regardless of what’s considered “good” in your area, you can use this formula to compare different investment opportunities.
Bottom line: Many people focus on the positives of owning investment property. An extra income and potential to build equity with their tenants’ money seems too good to be true and it just might be. If you’re going to be a successful landlord, however, you should acknowledge the risks that come with the territory and plan accordingly.
Nathaniel Sillin directs Visa’s Practical Money Skills For Life financial education programs. Follow him on Twitter at twitter.com/PracticalMoney. His articles are intended to provide general information and should not be considered legal, tax or financial advice. Always consult a tax or financial adviser for information on how the law applies to your individual financial circumstances.

               Denisha Maxey

Consumer business by Denisha Maxey

STORIES of companies facing financial difficulties make the news daily. Small businesses merging with larger concerns and vice versa in an attempt to stay financially afloat has become the new norm.
Economic issues have affected commercial entities in a major way and, just like families in many households today, businesses must make tough financial decisions.
Sometimes those decisions include financial action plans to help the company try to maintain financial stability. Sometimes, the solution is to file bankruptcy or go completely out of business.
When a business chooses to file bankruptcy or close its doors, its customers are the ones left holding the bag. Finding that you have made a purchase from a business that has since closed its doors or filed bankruptcy can be a nightmare.


It can seem like a difficult situation but there are ways you can protect yourself as a consumer when facing such circumstances.
If a business has filed chapter-seven bankruptcy under Texas state law, it is obligated to pay its debts to creditors and employees, as well as any taxes owed. The debts are satisfied with profits made from selling the assets of the business.
Unfortunately, when this happens, consumers are the last on the list to receive any money. However, if you have made a purchase from the business with a credit card and have never received your merchandise, you do have the option to file a dispute with your financial institution. If you’ve paid for the purchase with cash or your personal check, you will need to pursue a claim with the court handling the company’s bankruptcy proceedings.
Knowing the difference between a chapter-seven or chapter-11 bankruptcy can also help you explore your options. When a business files under chapter 11, it is still able to operate and its customers might not
be affected.
If you have made a purchase from a company that has since gone officially “out of business” and the purchased item has a warranty, you might still be covered under the manufacturer’s warranty.
If you have an extended warranty, most probably it has been supplied by a third party. The fact that the business that sold you the merchandise has shut down does not affect a warranty administered by a third party, so your merchandise will still be covered.
The worst-case scenario is a business closing its doors while in possession of your items. You might have an expensive item such as an electronic device or a vehicle being repaired, only to find the doors locked when you attempt to retrieve your property. Try to contact the business owner. If all else fails and the cost of the item is less than $10,000, you may file a case in a small-claims court.
Whether you are dealing with a large or small business that has filed bankruptcy or has closed its doors for good, it can be frustrating. Knowing what recourses you have to protect you as a consumer is beneficial and can help you avoid losing out financially.
Denisha Maxey is director of dispute resolution at Houston Better Business Bureau.

Practical money matters by Nathaniel Sillin

IF YOU’VE made it to a point in life at which you’re ready to start investing, or at least start thinking about investing, you might consider opening a brokerage account. But you’re not alone if the thought of choosing a brokerage firm is foreign to you.
While brokers have helped individual investors buy and sell investments for decades, the relationship and services have changed over time. For instance, rather than calling their brokers, today many investors use a sleek online platform or mobile app to place orders.
Fees associated with maintaining a brokerage account and investing have also changed. Whether you’ve been investing for years or are just diving in, it’s wise to occasionally compare brokerage firms’ offerings and costs, including those listed below, and find the option that’s right for you.
Fees. Trading-platform fees might not be necessary. A trading platform is downloadable software or an online app that you can use to make trades, view real-time quotes and news, perform analysis and set up your trading strategies.
While platform fees can cost hundreds of dollars a month, many high-quality options are completely free. Others are free as long as you meet minimum account-balance requirements.
Costs. Trading fees are common but prices vary. Brokerage trading fees can vary widely depending on the financial product and broker.
Many online brokers charge a flat fee, typically somewhere between $5 and $10 per online trade for stocks or exchange-traded funds, known as ETFs. Some brokers alternatively charge a fee per share, which could be a better option for day traders.
Making a trade over the phone or with the help of a broker rather than on your own online could incur an additional fee, sometimes between $20 and $50.
Mutual-fund transaction fees might be higher than the cost of trading stocks, although some brokers have a list of no-transaction-fee funds. More advanced trading tactics, such as options, also might have additional fees.
Higher trading fees don’t necessarily indicate better service but the fees could help the brokerage firm invest in its trading platform, customer service and research tools. Therefore, you’ll want to compare each firm as a whole, not just its trading fees.
Annual fees. Avoid them. Some brokers charge an annual fee, often around $50 to $75. You might be able to avoid the fee by maintaining a minimum balance in your account, or consider that there are a number of brokerages that don’t charge an annual fee regardless of your account balance.
Account closure or transfer. Don’t overthink fees associated with account closure or transfer. It’s common for a brokerage to charge $50 to $75 to close your account or transfer your holdings to a different brokerage. However, many brokerages will reimburse you when you open a new account with them instead.
Optional services. Such services are just that – optional. A few services, such as paper statements or premium research tools, often cost money but are easy to opt in or out of based on your preferences.
Low-fee brokerages. How much could you save by choosing a brokerage that charges low fees? Unless you’re an advanced investor, there is probably a variety of brokerages that can fulfill your needs. Review the fees you’re paying at your current brokerage, or at a brokerage you’re considering, and compare them with the competition’s offering.
Paying $5 versus $10 per trade might not be significant for every investor. However, that’s the difference between receiving $95 worth of stock or $90 worth when you invest $100. Everything being equal, spending the extra $5 means you take an immediate five-per-cent loss and miss out on potential gains.
Bottom line: Choosing a brokerage with low fees helps ensure that your money goes towards your investments rather than the firm’s overhead expenses. Low-fee brokerages aren’t necessarily worse either. Some still offer high-end services, advanced trading platforms and mobile apps that can satisfy the needs of most beginner or intermediate investors.
Nathaniel Sillin directs Visa’s Practical Money Skills For Life financial education programs. Follow him on Twitter at twitter.com/PracticalMoney. His articles are intended to provide general information and should not be considered legal, tax or financial advice. Always consult a tax or financial adviser for information on how the law applies to your individual financial circumstances.

Consumer business by Denisha Maxey

MANY FINANCIAL institutions now issue debit and credit cards with microchip technology as a way to store and protect consumers’ personal data. Embedded on the front of the card is a microprocessor that recognizes your personal identification number, or pin, and merchants are now required to have payment-processing terminals that accept the technology.
When you buy something using one of these “chip and pin” cards, instead of swiping it, you insert it into the terminal for your payment to be processed.
If you are using a debit card, you might still be required to enter your pin number to complete your transaction, or it might require your electronic signature if you are using a credit card. It might seem awkward at first to insert your card instead of swiping it but, as with anything that changes, you will get used to it.
The embedded microchip works in a similar manner to that of the magnetic strip we are used to seeing on the back of our cards but it is considered to be more secure. Each transaction processed using a card with a microchip is given an individual transaction code that cannot be used again, thus making use of your card more secure. Magnetic strips, on the other hand, allow hackers to extract the data used for transactions because it never changes.
So chip technology is the newest way in which our banks hope to combat card fraud but how safe and secure is it really?
One problem is shimmers, which are used to steal consumers’ information from cards with chip technology. They do the same thing as skimmers, which steal the information when a card is swiped on a card terminal used for purchases, but they are more difficult to detect because they are smaller than Skimmers, which tend to be bulky.
Shimmers are installed inside card terminals and steal information such as your pin off the microchip. Once access is gained to secured data, it will be used for fraudulently activity.
There is a silver lining to having cards having chip technology, however. The time in which criminals can use the stolen information is shorter than for magnetic-strip cards and it is easier to alert financial institutions to the fraudulent activity.
To protect yourself, always check any card terminal before you insert your card, especially at gas pumps, which are the easiest targets for placing shimmers because they are outdoors.
It might be hard to detect a shimmer because they are placed inside the terminal but follow your first instinct – if something looks strange about the terminal, do not use it! Report it directly to the business owner so it can be checked.
You can also pay for gas inside the station instead of at the pump, as well as using your debit card as a credit card instead. Purchases made as credit transactions do not require you to use your pin, which reduces the risk of criminals gaining access to your pin.
Finally, always review your monthly statements from your financial institution for any unexpected transactions. Nothing is ever 100 per cent secure and safe, so it is more important than ever to be aware of ways in which criminals can gain access to your personal information.
Denisha Maxey is director of dispute resolution at Houston Better Business Bureau.

Photo: MGN

Practical money matters by Nathaniel Sillin

IMAGINE the frustration that would follow if you spent hours planning and narrowing in on a dream home only to find out that you can’t afford it when push comes to shove. Starting with a price range can help you make the most of your search but you’ll need to account for closing costs to create a realistic budget.
A catch-all for the fees and services that result from the sale of a home, closing costs are generally about two to five per cent of the home’s value when you’re making a purchase. In other words, you could pay about $4,000 to $10,000 on a $200,000 home.
Costs estimation. Your closing costs and fees vary depending on where you’re buying, how much you put down, who helps you with the home-buying process, the type of home you’re buying and the type of loan you’re taking out.
You can estimate the closing costs of homes you’re interested in by using one of the many online closing-cost calculators. Also, ask your real-estate agent to help you estimate the closing costs of homes in different neighborhoods.
Fees. While costs can vary and state laws dictate differences in the closing process, here are a few typical services or fees:
• Inspections. You probably want to hire an inspector to make sure the home doesn’t need any major repairs and there aren’t any infestations by wood-eating pests such as termites. Many lenders require these inspections but, even when they don’t, it’s usually a good idea.
• Attorney fees. You could have to pay attorneys to help prepare and review documents for the closing.
• Survey. Some states require you to hire a surveyor to verify the size of the lot.
• Homeowner’s insurance. You might need to pay several months’ worth of homeowner’s insurance premiums up front.
• Origination fee. Mortgage lenders, banks or brokers often charge about one per cent of your loan’s value.
• Property taxes. Several months’ worth of property-tax payments could be due at the closing.
You might see some mortgage lenders advertising “no-closing-cost” mortgages or refinancing. While these offers can be enticing, you’ll generally pay a higher interest rate on the loan or the closing costs will be wrapped into the mortgage.
It might be a good option if you’re planning on moving within the next few years. Otherwise, you’ll probably wind up paying more in interest over the lifetime of the loan than you would have on the closing costs.
Try to do your own calculations to determine if a no-cost closing makes sense based on your estimated closing costs, the increase in monthly payments and how long you plan on staying in the home.
Lender’s estimate. You’ll know approximately how much you have to pay before the closing. Mortgage lenders have three business days from when you submit a loan application to give you a loan estimate. The standardized document shows your estimated interest rate, monthly payments, taxes, insurance and closing costs.
The federal government’s consumer financial protection bureau has an interactive example of a standard loan estimate form with explanations and definitions of terms. On the second page, there’ll be a list of closing costs, including a breakdown of which services you might be able to negotiate.
You shop mortgage lenders, compare the loan estimate you receive and then continue the process with the lender that gives you the best estimated terms.
Three business days before your scheduled closing, the lender you choose must give you a five-page closing disclosure form with the finalized terms.
Carefully look over the closing disclosure and ask your real-estate agent, loan officer or attorney any questions you have. If you don’t agree with the new terms of the deal, it’s not too late to back out. If you’re happy with the terms and the closing goes smoothly, you’ll be a homeowner soon.
Bottom line: Estimating your closing costs and budgeting accordingly can help ensure you’re looking for homes within your price range. That’s important because you want to be able to move quickly when you find a home you love. However, don’t move so fast that you miss out on savings opportunities. Shopping mortgage lenders and service providers could help you minimize your closing costs.
Editor’s note: You can find more information online through the links included in our electronic version of this article at thepostnewspaper.net.
Nathaniel Sillin directs Visa’s Practical Money Skills For Life financial education programs. Follow him on Twitter at twitter.com/PracticalMoney. His articles are intended to provide general information and should not be considered legal, tax or financial advice. Always consult a tax or financial adviser for information on how the law applies to your individual financial circumstances.