November 17, 2021 | BY admin
Roth&Co’s latest video series: Real Estate Right Now.
Presented by Alan Botwinick and Ben Spielman, co-chairs of the Roth&Co Real Estate Department, this series covers the latest real estate trends and opportunities and how you can make the most of them. This episode discusses critical valuation metrics used to calculate the potential of an investment property.
Watch our short video:
Investing in real estate can be profitable, rewarding and successful. At the same time, the real estate investment industry is also demanding, competitive and very often, risky. Success requires a combination of knowledge, organization and determination, and while this article may not be able to supply some of those requirements, it will help increase your knowledge about how to initially assess a real estate investment. Here are three useful tools to help calculate the potential of an investment property:
o Gross Rent Multiplier (GRM)
o Price Per Unit (PPU)
o Capitalization Rate (Cap Rate)
Gross Rent Multiplier (GRM)
When an investor considers buying a commercial or rental property, he’ll need to know how long it will take to earn back his investment. The GRM is a simple calculation that tells us how many years of rent it will take to pay off the cost of an investment purchase. The GRM formula compares a property’s fair market value (the price of the property) to its gross rental income.
Gross Rent Multiplier = Purchase Price / Gross Annual Rental Income
The result of the calculation represents how many years it will take for the investor to recoup the money he spent on the purchase of the property. The lower the gross rent multiplier, the sooner the investor can expect to get his money back.
Calculating an investment property’s GRM is not complex and will result in a useful metric, but in practicality, it does not consider operating costs such as the debt service coverage, the property’s maintenance expenses, taxes, local property values and other important factors that strongly impact the profitability of an investment
Experienced investors use the GRM metric to make quick assessments of their opportunities, and to quickly weed through their options. A high GRM may serve as a red flag, directing the investor to look elsewhere and spend more time analyzing more optimal options.
Price Per Unit (PPU)
Another tool in the investment arsenal is the PPU, or Price Per Unit. This calculates just that – the price per door on your investment property. The calculation is simple:
Price Per Unit = Purchase Price / Number of Units
In other words, the PPU is the amount the seller is asking per unit in the building. The PPU can provide a broad view of the market and can give you a good idea of how one property compares to another. The downside of the calculation is that it does not determine the ROI or Return on Investment. PPU does not take any other features of the property into consideration, so its usefulness is limited.
Capitalization Rate (Cap Rate)
The Cap Rate is a realistic tool that considers an investment’s operating expenses and income, and then calculates its potential rate of return (as opposed to the GRM, which looks only at gross income). The higher the Cap Rate, the better it is for the investor. Why is it realistic? Because the Cap Rate estimates how profitable an income property will be, relative to its purchase price, including its operational expenses in the computation.
Capitalization Rate = Net Operating Income / Purchase Price
Like any other calculation, the Cap Rate will only be as accurate as the numbers applied. If a potential investor under- or overestimates the property’s operational costs or other factors, the calculated Cap Rate won’t be accurate.
There is no one-size-fits-all calculation that will direct an investor to real estate heaven. However, utilizing basic tools like the GRM, PPU and Cap Rate will give an investor a broad view of the investment’s potential. Using these tools to jumpstart the due diligence process can help the investor determine whether further research into the investment is warranted and what a property’s potential for profit may be.
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This material has been prepared for informational purposes only, and is not intended to provide, nor should it be relied upon for legal or tax advice. If you have any specific legal or tax questions regarding this content or related issues, please consult with your professional legal or tax advisor.
September 09, 2021 | BY admin
As we approach the holidays and the end of the year, many people may want to make gifts of cash or stock to their loved ones. By properly using the annual exclusion, gifts to family members and loved ones can reduce the size of your taxable estate, within generous limits, without triggering any estate or gift tax. The exclusion amount for 2021 is $15,000.
The exclusion covers gifts you make to each recipient each year. Therefore, a taxpayer with three children can transfer $45,000 to the children every year free of federal gift taxes. If the only gifts made during a year are excluded in this fashion, there’s no need to file a federal gift tax return. If annual gifts exceed $15,000, the exclusion covers the first $15,000 per recipient, and only the excess is taxable. In addition, even taxable gifts may result in no gift tax liability thanks to the unified credit (discussed below).
Note: This discussion isn’t relevant to gifts made to a spouse because these gifts are free of gift tax under separate marital deduction rules.
Gift-splitting by married taxpayers
If you’re married, a gift made during a year can be treated as split between you and your spouse, even if the cash or gift property is actually given by only one of you. Thus, by gift-splitting, up to $30,000 a year can be transferred to each recipient by a married couple because of their two annual exclusions. For example, a married couple with three married children can transfer a total of $180,000 each year to their children and to the children’s spouses ($30,000 for each of six recipients).
If gift-splitting is involved, both spouses must consent to it. Consent should be indicated on the gift tax return (or returns) that the spouses file. The IRS prefers that both spouses indicate their consent on each return filed. Because more than $15,000 is being transferred by a spouse, a gift tax return (or returns) will have to be filed, even if the $30,000 exclusion covers total gifts. We can prepare a gift tax return (or returns) for you, if more than $15,000 is being given to a single individual in any year.)
“Unified” credit for taxable gifts
Even gifts that aren’t covered by the exclusion, and that are thus taxable, may not result in a tax liability. This is because a tax credit wipes out the federal gift tax liability on the first taxable gifts that you make in your lifetime, up to $11.7 million for 2021. However, to the extent you use this credit against a gift tax liability, it reduces (or eliminates) the credit available for use against the federal estate tax at your death.
Be aware that gifts made directly to a financial institution to pay for tuition or to a health care provider to pay for medical expenses on behalf of someone else do not count towards the exclusion. For example, you can pay $20,000 to your grandson’s college for his tuition this year, plus still give him up to $15,000 as a gift.
Annual gifts help reduce the taxable value of your estate. There have been proposals in Washington to reduce the estate and gift tax exemption amount, as well as make other changes to the estate tax laws. Making large tax-free gifts may be one way to recognize and address this potential threat. It could help insulate you against any later reduction in the unified federal estate and gift tax exemption.
September 02, 2021 | BY admin
For many small to midsize businesses, spending money on marketing calls for a leap of faith that the benefits will outweigh the costs. Much of the planning process tends to focus on the initial expenses incurred rather than how to measure return on investment.
Here are five questions to ask yourself and your leadership team to put a finer point on whether your marketing efforts are likely to pay off:
1. What do we hope to accomplish? Determine as specifically as possible what marketing success looks like. If the goal is to increase sales, what metric(s) are you using to calculate whether you’ve achieved adequate sales growth? Put differently, how will you know that your money was well spent?
2. Where and how often do we plan to spend money? Decide how much of your marketing will be based on recurring activity versus “one off” or ad-hoc initiatives.
For example, do you plan to buy six months of advertising on certain websites, social media platforms, or in a magazine or newspaper? Have you decided to set up a booth at an annual trade show?
Fine tune your efforts going forward by comparing inflows to outflows from various types of marketing spends. Will you be able to create a revenue inflow from sales that at least matches, if not exceeds, the outflow of marketing dollars?
3. Can we track sources of new business, as well as leads and customers? It’s critical to ask new customers how they heard about your company. This one simple question can provide invaluable information about which aspects of your marketing plan are generating the most leads.
Further, once you have discovered a lead or new customer, ensure that you maintain contact with the person or business. Letting leads and customers fall through the cracks will undermine your marketing efforts. If you haven’t already, explore customer relationship management software to help you track and analyze key data points.
4. Are we able to gauge brand awareness? In addition to generating leads, marketing can help improve brand awareness. Although an increase in brand awareness may not immediately translate to increased sales, it tends to do so over time. Identify ways to measure the impact of marketing efforts on brand awareness. Possibilities include customer surveys, website traffic data and social media interaction metrics.
5. Are we prepared for an increase in demand? It may sound like a nice problem to have, but sometimes a company’s marketing efforts are so successful that a sudden upswing in orders occurs. If the business is ill-prepared, cash flow can be strained and customers left disappointed and frustrated.
Make sure you have the staff, technology and inventory in place to meet an increase in demand that effective marketing often produces. We can help you assess the efficacy of your marketing efforts, including calculating informative metrics, and suggest ideas for improvement.
August 30, 2021 | BY admin
For many Americans, saving for retirement means participating in the 401(k) or 403(b) retirement plans offered by their companies. This leaves the self-employed and small business owners out in the cold when it comes to saving for retirement. Luckily for them, there are several options they can utilize.
Every American not covered by a company plan, can contribute to an IRA to save for retirement. The $6,000 contribution limit for these plans however, just won’t cut it for many. SEP IRAs were established as a way to help small-business owners establish retirement accounts for their businesses without the headaches that come with ERISA-sponsored plans. Later legislation introduced the solo 401(k), which also offers a simplified way for business owners to save for retirement and enjoy some of the benefits of a 401(k) plan that are not available with SEPs.
Here are the highlights of these two plans, and their key differences:
A Simplified Employee Pension (SEP) IRA is a plan that can be established by employers, including the self-employed. SEP plans benefit both employers and their employees. Employers may make tax-deductible contributions on behalf of eligible employees to their SEP IRAs. SEPs are advantageous because they have low administrative costs, are easy to set up and allow an employer to determine how much to contribute each year, without annual requirements. The contribution limit for 2021 is the lesser of $58,000 per person and 25% of adjusted net earnings. (For self-employed income, the percentage is a little lower.)
One major benefit of a SEP IRA from the employee’s perspective is that an employer’s contributions are vested immediately. No loans are permitted from a SEP IRA. The deadline for SEP IRAs is the filing date, including extensions, which make it a good option if any discussion arises after year’s end. A drawback from the employer’s perspective is that the employer must contribute on behalf of all employees who earn a total annual compensation of more than $600 if they reach the age of eligibility, even if they are only part-time workers.
Solo 401(k) plans are for sole proprietors, small business owners without employees (though spouses can contribute if they work for the business), independent contractors and freelancers.
With these plans, both the employer and the employee can make contributions. Like a regular 401(k), there is a Roth option to have after-tax funds contributed to these accounts. The contribution limit for 401(k)s for 2021, as an employee, is $19,500. If you are 50 or older, you can make an additional catch-up contribution of $6,500.
Wearing the employer hat, you can contribute up to 25% of your compensation. The total contribution limit (employee and employer contributions) for a solo 401(k) is $58,000 for 2021. This does not include the employee’s $6,500 catch-up amount for those over the age of 50. The calculation usually breaks down to the sum of $19,500 as an employee and $38,500 as an employer.
So, which one is a better option – a SEP IRA or a Solo 401(k)? The answer depends on your situation.
If you’re unsure which plan may work for you, please reach out to us at firstname.lastname@example.org. We’ll help you review your options and come to a decision tailor-made for your needs.
August 30, 2021 | BY admin
For most of us, having a job, a boss and a workplace where we have a genuine sense of purpose is very important. Steve Jobs famously said, “Your work is going to fill a large part of your life, and the only way to be truly satisfied is to do what you believe is great work. And the only way to do great work is to love what you do.”
As a business leader, motivating your employees and ensuring that they are engaged in their work is one of the most important things you do for your company. Research has shown time and again, that employee engagement is vital to a business’s success and profitability. According to the analytics and advisory company Gallup, engaged employees display higher levels of enthusiasm, energy and motivation, which translates into higher levels of job performance, creativity and productivity. This correlates to greater revenues and profits for your organization, as well as higher levels of well-being for employees and less turnover.
Despite the importance of employee engagement, just 35 percent of employees in the United States are considered “engaged” in their jobs. So, what is employee engagement and how do you improve it at your company?
Gallup, an industry leader in employee engagement, defines ‘engaged’ employees as those who are involved in, enthusiastic about and committed to their work and workplace. For engaged employees, it is about more than just a paycheck – they work harder and are more dedicated towards their employers, which is then reflected in their individual productivity. Disengaged employees are more likely to only do the bare minimum or even actively damage your company’s work output and reputation.
As a business leader, what can you do to improve the engagement of your employees? Well, it turns out that leaders and managers have a significant amount of input on employee engagement. According to Gallup, 70% of the variance in team engagement is determined solely by the manager. A study by the American Psychological Association found that 75% of Americans say their “boss is the most stressful part of their workday.” So here are a few ways that business leaders can increase employee engagement:
Include Me: Assuring your employees that their work and opinions are important is a simple yet important step to increase engagement. According to cloud-based software company Salesforce, professionals who believe their voice is heard are over four times more likely to feel empowered to do their best work. When you are considering solutions to business problems, encourage your employees to participate in the decision-making process, and give equal consideration to each employee’s suggestions, so they feel valued. Following the success of an important project or initiative, offer praise and emphasize how much you appreciate your employee’s contributions.
Inspire Me: Trust and autonomy are core ingredients that inspire engagement amongst employees. Be sure to delegate important tasks and projects to your team because it demonstrates trust and empowers your employees. To delegate effectively, ensure you are assigning tasks to employees who are equipped with the knowledge, skills and resources to handle them. Take time to clearly define the expectations and the required results, but leave your employees to accomplish the assigned task and don’t micromanage.
Grow Me: Many business leaders and managers are so focused on their own careers or success that they often forget about the careers of their employees. It is important for leaders to recognize that most employees are looking to be a part of an organization that offers a visible path for career progression. People want to feel that they have partners in developing their careers – and that goes beyond timely promotions. They want personal and professional development, such as the opportunity to cultivate new skills and experiences or by pursuing valuable certifications or degrees. As your employees’ careers develop and grow, your organization will be poised to reap the rewards.
Now more than ever, good pay and benefits are not enough to fully engage employees. You need to give your employees challenging work, truly value their contributions and show that you care about them and their careers. If you follow these steps, you will find that you have happier employees who are willing to work harder for you and your business.