Insurance Advice and Assistance

Are you an investor?

Investors are ambitious and optimistic. Unlike humble savers, they believe that taking a little risk and exerting a minimal effort will dramatically increase their funds. Investing can be very troubling, but it touches fewer core emotions than savings. When ambition is thwarted and optimism is shattered, investors are miserable. However, they do not storm the capital and start a revolution. Investing concerns one-on-one relationships rather than the role of God and society in safeguarding hard-earned money. Whereas savers trust no one individual, optimistic investors trust too many people. When markets collapse, individuals are blamed, not government or the gods.

Ideally, the investor only invests excess savings. In investing, an individual or a group lends their excess savings to other individuals or groups for a fee. The fee is rent, interest, dividends, or capital appreciation. Groups can be corporations, partnerships, trusts, or other legal entities. The investor relies on the investee to pay the fee over time and to repay the investment.

Investing creates a relationship between the investor and the investee. Each has expectations of the other. Emotions are triggered entering the relationship, during the relationship, and leaving the relationship.

Comparative market analysis

“Comparative market analysis” means nothing more than doing  some comparison shopping before you buy any real estate. Just as  you would compare and shop prices before buying new furniture or  a car, so, too, you need to compare and shop prices for similarly situated  properties before making a purchase. The difference in this  instance is that you are comparing a building that is for sale with  ones that have already been sold.

What do you need to compare? The major considerations are:

Number of units
Square footage of the improvements (structure)
Square footage of the lot (the dirt)
Condition of the surrounding neighborhood
Age and condition of the building
Income-producing capability (current rents versus market rents)
Parking (garages, pads, carports, or none)
Amenities (view, fireplaces, multiple baths, pool, patios or decks, etc.)

The idea when conducting a comparative market analysis is to  locate a few properties in the same or similar neighborhood that  have recently been sold. As outlined previously, look for properties that have traits similar to the one you want to buy. In a perfect  world, the sales should be within the past six months—the more recent,  the better. Once you gather all the data, your job is to compare  and contrast it to determine a fair price for the building you’re considering.

INSURANCE AND THE ADVANTAGES OF CDO EQUITY

CDOs provide access to a host of assets that investors cannot easily gain exposure to, either because of liquidity or rating constraints. As previously mentioned, these assets include leveraged loans, noninvestment-grade bonds, residential subprime mortgages, and commercial real estate loans.

By providing access to these assets, CDOs deliver diversification benefits that expand the efficient frontier. In cases where the pool of financial assets is not static, but rather managed by a portfolio manager, CDO equity gives investors access to a manager’s expertise.

CDO structures do not manufacture diversification. CDO equity returns are closely linked to the performance of the underlying assets. They will not be perfectly correlated with the underlying asset performance because of structural provisions that affect the way the collateral cash flows are distributed to equity.

CDO equity offers high dividend payments that are typically front-loaded. The investment typically competes for capital with private equity and hedge funds. CDO equity offers far greater transparency than either of these two asset classes. With CDOs, the funding costs and cash flow allocation rules are known. Moreover, there is a trustee and regular surveillance through which investors can know the contents of a manager’s portfolio. In addition, the rating agencies closely monitor the CDO market and publish regular reports.

Sales Taxes

Reflecting public opinion, which objects to sales taxes less than income or property taxes, little of the tax cutting over the past few years has affected sales taxes. The three largest examples of cuts — Georgia, Missouri, and North Carolina — have involved whole or partial elimination of the portion of the sales tax levied on food.

Even in the state tax cutting environment of the last three years, there have many serious proposals to raise sales taxes. For example, sales tax increases were a part of Governor Bush’s tax plan in Texas, which failed this year, and Governor Voinovich’s Ohio plan for school finance equalization, which also failed. Wyoming legislators will likely raise their sales tax if and when they decide they can’t fund compliance with a state supreme court decision on school finance without raising taxes.

Local option sales taxes have become quite popular, with the option being offered in more states each year. More local governments are adopting the tax for the first time, and many are raising rates.

Trends in State Tax Policy

The level or burden of state and local taxes has remained remarkably stable at about 11% of personal income for 30 years. So in broad terms, the changes in tax policy have consisted of increasing reliance on some tax sources while decreasing reliance on others.

Until about 1990, state tax policies were following general patterns that had lasted for several decades. Reliance on sales taxes was being increased slowly, primarily by increases in rates.

Reliance on personal income taxes was being increased fairly rapidly. Most of the increases were associated with: (1) the tendency of income tax revenues to rise faster than personal income with no increase in tax rates and (2) adoption of income taxes by additional states.

Reliance on property taxes was being reduced. These changes were interrelated with a gradual shift from reliance on local taxes, primarily the property tax, to finance schools to having a greater percentage of school costs paid by states.

Since 1990, there has been no overriding feature of tax policy changes equivalent to the earlier shift from local property taxes to state sales and income taxes. Both the percentage of state and local tax revenues raised by states and the mix of revenues raised by sales, property, and income taxes have remained relatively stable. There is no overwhelming trend in any direction, though there are some hints of trends shown by the generalizations below.

Border Tax Issues and Options

While there are constant calls for special treatment of border communities, these calls are usually rejected by state legislatures for two reasons. First, special tax concessions in border communities raise constitutional issues in many states because otherwise equal citizens and firms are being treated unequally in state policy. Second, there is no obvious place to draw the lines around such policies. For example, a border municipality might be losing 25% of possible business to another state, another municipality in the same county might be losing 10%, the whole county 12%, and a neighboring county 8%. There is a difficult issue of whether to use special border taxes just in municipalities on the border, in entire counties, etc. No matter where the line is drawn, it creates a border problem for the first county not given special treatment. If
taxes are dropped in Border County to match a neighboring state, then Near-Border County residents have a new incentive to do business in Border County.

Patronage Websites

The following websites are under our patronage:

• http://business.insurance-instructor.com/ – Nuiances of business explained
• Finances Revealed Blog – All tricks of finances management revealed
• The Value of Money Blog – Learn the true value of your finances
• Investment Prospects Blog – Information for all global investors
• Universal Loans Blog – Base of information about loans and mortgage
• Real Estate Expanded Blog – How to increase income form real estate