Simply Junior

Just because the Estate Tax has been phased out in 2010, don’t be lulled into thinking it won’t be back with a vengeance. On the books, it’s slated to return with only a $1 million exemption. Efforts to get rid of it altogether have failed. The government will be looking for more money anyway now anyway. The following give you the full picture and how to prepare for it.

This tax is the government’s last bite out of you when you die. It’s a tax on the value of your estate at your death. And your estate is anything you own and in which you had an interest at the time of death. It can also include the value of certain property you transferred within 3 years before your death.

This graduated tax is imposed on the value of your estate in excess of whatever this year’s estate exclusion level – if you die this year. And the tax rates here starts at 20% and rise fast to 45% or higher!

If you’re leaving an on-going business as part of your estate and have no cash to pay the estate tax, the business can be dismantled to pay it. This is true for almost anything you own. The 2001 Tax Act1 broke apart the unified estate and gift tax scheme and left us with a confusing and unpredictable estate tax arrangement that undermines long term planning. The estate tax has been in the process of being phased out since then. Each year, rates have been lowered or estate tax exclusion levels have risen.

For 2009, the highest estate tax rate is 45% with a $3.5 million exclusion level. And in 2010 no estate tax exists. Originally, it was hoped that that would continue indefinitely. But that just isn’t going to happen.

The increasing exclusion levels for this tax through 2010 will keep a lot of Americans free from estate tax without much planning. But if you have or control a lot of wealth or a business of substantial value, you may want to take steps to either fore go ownership to reduce your estate or buy life insurance to handle that final taxes.

Even though the pre-2001 tax is slated to go into effect in 2011, it’s not clear whether congress will alter this. Those who die in 2011 are slated to pay have only a $1 million estate tax exclusion level and up to a 55% tax rate imposed on them.

Most in congress favour keeping the Estate Tax but they’re arguing over how high the exemption level should be. With 2011 less than 2 years away, congress just can’t get its act together.

Originally, this death tax was aimed only at the very wealthy and not the average citizen. But it’ll be hitting the average citizen in 2011. That’s because it won’t be hard for the average citizen’s holding to go beyond the $1 million exclusion level. Many estates will surpass it by virtue of house values alone having risen so high over the last 10 years.

Of course, if you’re married and die before your spouse, you can leave all your wealth to her without paying estate tax by using the ‘unlimited’ marital deduction from your gross estate. But, unfortunately, that will leave her estate that much bigger by the time she’s dies. And then the wealth will be taxed before going to your kids.

You should surely use your own tax exclusion level on to shelter some of the wealth in your estate when you die. You can do so by arranging to transfer at least that exclusion level amount to a trust with your kids as eventual beneficiaries. Beyond that, you can give the rest to your spouse. That ‘estate tax exclusion level’ trust’ can still help your surviving spouse with money needs before she dies.

So be prepared for the coming tax on your estate in 2011.

Real Estate Trends in 2010 have followed a pattern that was expected: as mortgage rates and homes sales have dropped, inventories of unsold properties have risen. The inventory currently on the market is only a portion of a larger inventory of REO (Real Estate Owned) by banks, which is held back and released slowly over a period of time, in order not to cause an even greater decline in housing values.

As we approach the end of the year, trends of 2010 will continue into 2011, following the same general pattern, with a slow recovery expected towards the end of 2011.

Some speculations predicted that the recovery would have started towards the end of 2010, but with new problems in the international economic markets, it looked like we took a double dip into the current recession. However, economists state that a double dip recession is unlikely, although spending and investments in the established economies have been challenged by emerging economies, like India and China.

Real Estate Trends are following the larger economic picture: the mortgage crisis has indeed caused a lot of turmoil and scars, which have created a domino effect with high unemployment, low consumer spending, consumer credit slow down and weak housing markets.

The large number of homeowners, who have lost their house in foreclosure, are not going to buy another property in the near future, because of the impact of the foreclosure on their credit (banks will not even consider a mortgage for a borrower for 4 years, if he/she had a foreclosure, 3 years for FHA loans,) therefore there is a new population of renters.

Investors, who have access to capital, can acquire homes for 60 cents on the dollar or less, via short sales and REO. They in turn keep these properties as rentals and investments, waiting on an inevitable economic recovery and increase in values.

Other Real Estate Trends worth mention are in the arena of commercial properties: commercial properties have followed a different pattern than residential properties, holding on to the market value longer and only in this last year have started to lose their balance, as large mortgage notes have become due and refinancing has become harder. Some great deals are available in commercial investments, from larger apartment buildings to shopping centers.

This is definitely the time to buy and it will continue for another couple of years. Inventory in residential and now commercial properties is abundant, seller’s contributions as allowed are more available and the Government (especially HUD) is providing grants and incentives not only to homeowners, but also investors, in an attempt to expedite the housing recovery.

There are some very compelling reasons for writing a business plan for small businesses. The challenge is that the misconceptions about what needs to go into a small business plan scare most owners and entrepreneurs away.

If you are like most small business owners or managers, you are incredibly busy, if not borderline overwhelmed. The idea of taking hours of valuable time to write a plan for your business may not seem worth it. But the data proves differently.

When writing a business plan for small business, focus on what really needs to be done, and what really needs to be measured. The plan does not have to be a 15 or 20 page document. In fact, it should only be one or two pages maximum. You should also have a yearly budget or financial plan as well. You really do not need to go overboard and do tons and tons of research about the market, and the opportunity, especially if you are already in business!

To write your plan, you will need a few things to get started. If you can assemble any of your sales and financial information for the past couple of years, that would be a bonus. You will need a notebook and writing instrument, possibly a laptop or a computer, and yourself. Then, basically find a quiet place to sit down for about an hour, and think about your business, and where you want it to go, and how you think you can get it there.

Let’s start with where you want your business to go. This is just a fluffy way of saying your vision for your business. Set a timeline for your vision; say 18 months or up to 5 years out. Then think about what your sales would be if everything goes as planned. What are your primary products or markets, and where will you do it.

Here’s an example: Within the next 3 years, grow MS Cut to $750,000.00 in sales providing industrial routing and cutting services to manufacturers and distributors in the Indianapolis market.

Or how about this: In the next 18 months, launch Tim’s Lunch & Deli, growing to $250,000 in sales. We will provide delicious sandwiches, soups and salads using all locally grown vegetables and products to the public in downtown St. Paul.

By writing out where you want your business to go in this fashion, you can clearly imagine the end result of your vision.

In terms of how you are going to get there, this is the strategy and tactics section of your plan. Again, what are the ways you are going to do the things you need to do? This could be everything from the methods you will use to attract customers, to the way that you will approach pricing your products or services. It can also address your marketing and advertising plans.

The main thing to keep in mind when it comes to your strategies and tactics, is to make them realistic. If you are going to need a lot of specialty skills (that you don’t currently have…) or technologies or a lot of money to do them, then chances are they won’t get used. Write this section of your plan so that you can actually do everything you need to do.

Next, you need to create a few measurables for your business. These are things like monthly sales revenues, profit percentages, labor hours to sales, number of returns per month, number of employee hours each month, etc.. These are all things that you can keep track of so that you will know if your plan is working, or if you need to address something quickly.

Each business, and each industry can have it’s own set of unique measurables. You may have one statistic you can keep that is a telling symbol for your business. Keep track of it, and see how it effects other areas of your business.

You should be able to track anywhere from 3 to 9 different measurables. Any more than that and you will not get much from it, and you are less likely to actually collect the information anyway. If you are using software like QuickBooks, Peachtree Accounting or another accounting app, there are several measurables you can pull and use to track your success.

All of the above information will fit nicely on one or two pages. Once you have that information, and you have written your business plan for your small business, the number one thing you can do is to use it, and use it often. Make a monthly (or weekly) appointment with yourself, your business partner, or your senior staff to review the plan, and make sure it still relevant. If something changes (and it will!), change your plan. It should be a living, dynamic document that you use on a regular basis to run your business.

By writing a business plan for your small business, you are creating a better opportunity for your business, and giving it a better chance of success.

You ask – when will this thing turn around? Well lets consider a few things here. First how long did it take us to get into this position? Folks it took at least 8 year to get into this position, and some say even longer. Well it may take us as long to get out of it as it took to get into it.

I do not think that things will stabilize until late 2010 or late 2011. It will take at least 3 years for things to stabilize. If you have investments in real estate in Chicago and the greater Chicago land area you must realize that it will take at least 2 or 3 more years for the real estate market to stabilize.

Let look at it!

Inflation is at a 27 year high, while personal income is down 1.6%. Unemployment is 9.5%, housing prices are decreasing over most of the country, foreclosures are very high and expected to climb even higher – the second wave of ARM’s are expected to hit very soon. Defaults on commercial mortgages are increasing, the stock market is not doing well. Pension Plans are taking a heavy hit, many folks have experienced over 30% plus loss of their pension plan funds and are worried about their future.

Even inflation is creeping up and bothersome – gas prices are going up, food prices are going up.

Banks have more properties on their hands then they can handle because of Bank REO’s and foreclosures. Real estate investors are buying Bank REO’s and foreclosures and sell them at wholesale prices for profits. It is however still difficult for the average wage earner to buy a house today because of the credit crunch.

Even though there are great buys in real estate today in Chicago and other cities across this country, the people most able to buy are real estate investors with cash. Chicago homes for sale are not moving like they did 3 or 4 years ago – inventory of homes in Chicago are at 20,399 in July, 2009.

With over 2 million real estate agents according to the National Association of Realtors (NAR), becoming a successful real estate agent takes more than just a license and a knowledge of current laws and regulations.The first year drop out range estimated to be from 40% to 80% demonstrates that many real estate agents are not as successful as they could be and research suggests that 90% give up after 3 years. The following 7 tips may help you avoid becoming one of these statistics.

First and Foremost YOU are a business. Real estate agents work for a broker, but are independent, commissioned sales people. This means that you are a small business and must run your practice as a business. Again, remember you are a small business owner. Embrace a Planning Attitude. If you don’t have a plan, then you are on some else’s plan – usually the successful real estate agent’s. During the last 10 years, what I have learned as a performance improvement consultant or coach is that most people place more value in planning a trip to the grocery store or a vacation than planning their lives either professionally or personally. Research Your Market Plan. Since you, as the real estate agent, are responsible for your own expenses, do your research specific to your marketing plan within your strategic plan. Time spent in constructing your marketing plan is definitely well spent. NOTE: Remember a business plan usually is data driven, while a strategic plan identifies who does what by when. Establish Sales Goals. Using your strategic action plan, establish sales goals. If you are new to this industry, it may take 6 months before the first sale. HINT: Use the W.H.Y. S.M.A.R.T. criteria for goal setting. Create a Financial Budget. Budgeting is critical given the up and down of this volatile market place. Your financial budget should plan for your marketing costs, any additional costs such as education and your forecasted income. Make Managing Yourself a Priority. Building a business is not easy. You must learn how to manage yourself especially in the area of time management, ongoing real estate business training coaching continuing education units, and personal life balance. Real estate is said to be a 24/7 business much like any small business. However, it is important not to lose sight of your personal life including family, friends, physical health, etc. Find a Mentor or a Real Estate Coach. Going it alone is not easy. Take the time to find a mentor who can help you steer through some of the known obstacles and help you during the “peaks and valleys.” If you have the resources, you may wish to hire a real estate coach or an executive coach who specializes in small business help and sales.

Being an incredible sales person and entering the real estate market does not guarantee similar sales success. However, these 7 tips may help you avoid many of the pitfalls by not being one of the four real estate agents who quit within one year or one of the nine who give up after 3 years.