New Business: Tips to Get Started

It appears the toughest part of starting your own business is just figuring out where to start. Often people have the idea, the resources, and the know how, but just don’t know how to begin. I am frequently asked if an attorney is needed to get this process started. I would say if you have the money to get an attorney, then sure use one, but you are definitely able to do it on your own. With technology today, most of this process can just be done online. I am guessing that most states are similar, but will be focusing on Nevada for this post.

Business Plan – This is a piece of the process that is optional. There isn’t a requirement to do a business plan, but I will say that it makes it easier. It is almost like a blue print for your business. If you are looking to get lending for your new business, SBA requires you to have a business plan. You can do this on your own or Google business plan and find a template.

Determine the Type of Entity – Are you going to be a Corporation, Limited Liability Company, Sole Proprietorship, Partnership, or some sort of variation of the above. Each of these have their own requirements, but should you choose a Corporation or an LLC you will also need to file Articles of Organization. Again, this can all be done online through the Secretary of State website.

File your Fictitious Firm Name – If your business will be titled under anything other than your personal name you will need to file a fictitious firm name with the County Clerk. This is a fairly easy and painless process, so you just need to go on for Clark County Clerk or Washoe County Clerk and fill out the form and pay the $20 fee.

State Business License – Once you have determined the type of entity you are going to operate as, then you need to obtain a state business license. This will again be done through the Secretary of State website. When opening bank accounts and/or obtaining loans you will be asked for a copy of this, so before hanging it on your wall at the new business take some photo copies to have on hand.

Local City or County Business License – You will also want to contact your local county office and see what requirements you have for county and city licenses depending on where you will be located. They will be able to lead you in the right direction for this component.

File for your EIN Number – Your Employee Identification Number is very important. As a business, you are required to have an EIN number, which kind of acts as a social security number for your business. You will need this to open bank accounts and loans, as well as for tax purposes. You can file for your EIN number here.

There may be other components that come along the way in this process, but this should be a quick roadmap to guide you in the right direction. Any answers you need should be just a quick Google search away or utilize your banker, CPA, or attorney to help.

Please leave a comment or contact me with questions.

 

Mobile Mortgage

There is quite a buzz right now about online mortgage. There have been several companies that have been utilizing this for some time now. They showcase this technology by sitting on the couch or standing in front of a house and completing their mortgage application on the phone, meanwhile the people using the old method miss out on the home.

I would like to start by saying, as someone that is in this business I have been waiting for this for quite some time. You can do everything from your phone as it stands, so why would this be any different.   As technology progresses this will become more of the norm as far as lending and if you are a smart lender you will learn to embrace this.

I don’t want to sound like the sour guy about this because I do believe this is the future of lending, but I think it only has a small place in the lending game currently. If you are a single income or dual income, strictly W2 employee this may be easy. However, for the clients with multiple income sources, W2, K1, multiple entities, incentives, etc., I believe this is where this system will become extremely difficult for the borrower.

This brings me to a point I have been waiting to jump on for quite some time and that is the value of having a good banker/lender that understands your industry and the complexities of the lending environment. Many of the clients that I manage have done loans with me for years, so not only do I understand their business, but I am also familiar with them. That is a huge difference. The mortgage app is not going to understand that your bonus structure is based on the profitability of your firm divided by the number of attorneys. It will then want you to contact a representative to discuss, which then loses the luster of being strictly online or mobile.

I think we will continue to see this progress in the mortgage, lending and real estate arena going forward. That being said just because something is new does not mean that it is the best. I believe there is still a lot to be said about relationship in this world and this is often forgotten. There are a lot of similarities here with the online investing market. Online investing has been around for a very long time offering cheap trades in the “do-it-yourself” platform, but it is extremely hard to get them to leave their broker because of relationship. I think having someone that you trust in your corner goes a long way.

Please leave a comment or contact me with questions.

I Need a Pool

Let’s face it… When it is 115 degrees in Vegas all you want to do is take a dip in your swimming pool. Between March and August I get a ton of interest in financing for pools. Most pool companies either do not offer financing or if they do it is not generally at great terms for the borrower. In this post I will give you some options to get you swimming.

“Straight Cash Homie” – Randy Moss. There are two strong opposite sides to this. I am against using cash whenever possible, especially in this case. If you have $50-100K to build a pool I think you would be better to go buy a condo or two and rent them out. You would get a much better return on your money. If you are anti-loan guy, then paying cash is definitely an option.

Home Equity Credit Line – This is an option where if you have a good amount of equity in your home, then you may be able to borrow against that equity (second lien) and use those funds to build a pool. This is the most common home improvement option, but requires you to have equity in the home. Banks often offer promotional rates or teasers to get you into a HECL, so do some research on rates and terms.

Asset Verified Line of Credit – This type of line of credit is not very common, but does exist in the market and may go by different names. With this type of line, the bank will take a look at all of your liquid assets; checking, savings, 401k, IRA, investments, etc. There is no hold placed on the funds, but rather they want to see that they exist. Once all of the assets are verified, based on numerous different requirements, the bank will assign a dollar amount that they will lend you based on that total.

Security Secured Line – So let’s say you have an investment portfolio, there is a chance that you can borrow against this. Not every investment firm does this, so again do your research. The way this works is that you open an investment account and based on the amount of the investment you are given a line of credit that is secured by those investments. The benefit to this one is that you are earning interest on your money, while paying a specific rate on the line of credit. This one gets a little confusing, but a good financial advisor, which I am not a financial advisor, would open the investment account and I would help you secure the line.

All of these lines will have credit and income requirements to qualify.

Pool Constrcution

Bottom line is you have options to build that pool in your back yard. I would recommend looking into financing before talking to the pool builder, so you have an idea of what you can qualify for. Pools can get very expensive, very quickly so knowing your budget is important. If you have any questions reach out to a trusted lender for advice.

Please leave a comment or contact me with questions.

 

FHA

One of the most frequent questions I receive when discussing a home mortgage is “how much do I have to put down”? This is a loaded question because there are so many different types of loans on the market and they all have different down payment requirements. In this blog I will discuss FHA, Federal Housing Administration, loans and some of its key details. In the most simple of terms; FHA insures your loan so that the lender can offer you better terms.

Down Payment – Currently the down payment on FHA is 3.5%. The limit on a FHA loan in Nevada varies by county, but Clark County is $287,500 and Washoe is $345,000. This is a great opportunity for someone to buy a home that can afford the payment but doesn’t have the standard conventional down payment of 20%. Let’s use a purchase price of $200,000 as an example. With a conventional loan you would need to bring $40,000 in for a down payment compared to only $7000 with FHA.

Down Payment Gift Funds – Many people that are in the process of buying a home need help with their down payment. FHA has its own set of guidelines as far as using gifted funds. The gift needs to be a no-strings-attached gift, with no expectations of payback. The funds also cannot be tied to a loan from the gift giver. The gifts need to be provided by a family member, employer, close friend, labor union or government agency. The gift also needs to be verified in your account for a period of time, no IOU’s.

Credit Requirements – I have discussed in a previous blog the importance of your FICO score. FHA allows you to qualify with a lower credit score than most other conventional loans in the market. Again the reason for this is that you will be paying an insurance premium to help guarantee against default for the lender. A FICO score of 580 is required to qualify for FHA. There are some instances where you can qualify between 500-579, but the lender has to approve and often times requires you to bring more to the table for a down payment. This is much lower than the standard FICO requirements required for mortgage loans.

Mortgage Insurance – Technically, to avoid mortgage insurance you need to do a conventional loan and put down 20%. In the case of FHA, the upfront mortgage insurance premium of 1.75% of the loan amount is charged on all FHA loans, regardless of the down payment. So for that same $200,000 mortgage it would be a one-time fee of $3500, which can be included in the loan. The second component is your annual mortgage insurance premium of .85, which can be reduced with a greater down payment. The way this works is the total loan amount with the initial premium of $203,500 is multiplied by the .0085 and divided by 12 to give you your monthly payment. Your total monthly mortgage insurance payment would be just under $145 per month in this scenario. The mortgage insurance rules have changed many times recently, but currently the mortgage insurance remains on the loan until it is paid off or refinanced.

As with most loans there are many rules and regulations associated with FHA loans. I always recommend that you do additional research and/or reach out to a trusted lender that can help you navigate the details of getting you into a new home.

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Please leave a comment or contact me with questions.

 

 

 

Alcohol, Gambling, and Real Estate

I recently read a comment online from someone saying that there are too many blogs, so they only read the ones about alcohol and gambling. Made me think that I might be missing out on some people in the market that may be in the need for a loan that only read blogs with similar titles. Because of this I decided to highlight some of Las Vegas’s key attributes.

Alcohol: Craft beer is all the trend right now and with Las Vegas in the middle of another boom there is no wonder we have 13+ local breweries right here in the valley. There were also almost 20 Craft Beer festivals here in the Las Vegas area last year alone. So why the big push lately in Nevada? I think there are several reasons that are bringing the brewers here along with hundreds of other businesses. First, no state income tax and other business friendly tax benefits of doing business in Nevada. Next, Las Vegas has a very large inventory of land and commercial property to build your business. Finally… it’s Las Vegas man! Where else would you want to build your brewery and your craft beer brand name then the party capital of the world?

Gambling: In the next 3 years there are at least 6 new Hotel/Casino Resorts set to open on or near the Las Vegas Strip. This includes Resorts World, which is a $7 Billion project, which will have the largest casino in Las Vegas. That should help increase the $9 Billion in gaming revenue we had here from gambling last year. The addition of two professional sports teams should also increase the $4.5 Billion record handle sports books had in 2016 grow in the future. Mobile applications are becoming more and more popular and have increased the handle by 2/3 since it’s local inception here in 2010. It is an exciting time in the gambling world here in Las Vegas.

resorts worldResorts World

The big question is… where will these new employees live?

Real Estate: As of the end of Quarter 2 of 2017 the median home price in the Unites States was $253,000 versus Las Vegas at $235,000. The median price for a townhome or condo is just under $140,000. Nevada also still leads the country in upside down homes. Bottom line… this is still a great market to buy in. With approximately 5000 homes on the market without an offer and new developments popping up all over the valley, there are plenty of homes for the almost 5000 people moving to Nevada every month.

Whether it is alcohol, gambling or real estate that interests you, Las Vegas definitely has it all. The common denominator in all of these; however, is still real estate and population growth. It is an exciting time for the state of Nevada with estimations of the population exceeding 3 million by next year, hundreds of businesses moving in, and employment opportunities continuing to grow. These people need homes and fortunately we have them.

College Savings Options

As we all know college is very expensive. What many people do not realize is that college tuition is generally going up 8-9% annually and up to 12% annually in some places. This is why there needs to be more emphasis on college savings and preparation. There are many strategies and differing opinions and I am not here to sway you one way or the other, but rather just give you a brief overview of a few ideas.

Do Nothing: This is definitely a strategy that is used by families that can’t afford to help their children save or think that it is the child’s responsibility to get to college. They can either get a scholarship, financial aide, or get student loans to help them realize their dreams. This is a “real life” strategy that many of us probably have realized ourselves.

Prepaid Tuition: Prepaid tuition is a popular choice here in Nevada because we are one of the states that offer this program for our universities. Basically, you sign a contract to buy credits at today’s prices and pay that contract over an extended period of time. This is huge if you consider that 8-9% year-over-year increase. Usually this is for in-state tuition, but can also be transferred to out-of-state schools if they participate in the program. Although this is technically a 529 plan it differs from your standard 529 plan. For more information visit the website of the Nevada Treasurer.

529 Plans: 529 plans are an educational savings plan, which is operated by the state or institution and helps families set aside money for future college costs. Most investment firms offer 529 plans, so it is a matter of doing some research and finding out which is right for you. 529 plans usually offer the most growth potential for future college expenses. Most plans require some sort of minimum to open the account and then you can fund them as you would like. Here is an example of the growth potential.

Initial Deposit $3000

$100 per month deposit

Average market growth rate of 7%

18 years.

Total = $53,860.97

calculator

If you put that same amount just in a basic savings account it would end up being just over $24,000. Both have different tax implications, but I would refer you to a tax person or wealth advisor for those questions. Here is a good calculator to help you play with the numbers.

The largest differences between the two are flexibility and risk. The pre-paid tuition program is use for cost of credits exclusively, where the 529 plan can include credits, books, food, room and board, etc. As far as risk the prepaid plan has limited risk because you are prepaying for the credits at today’s rates but forfeit the potential for market growth. The 529 is tied to the market so there is market rate risk involved.

I would end this post with this in mind… time is the most important component to savings. If you have decided to help your children with their future college costs start immediately. If you choose the prepaid plan don’t wait or you will cost yourself about 8-9% per year by waiting. If you choose the 529 plan you are losing market growth potential every day you waste.

Please leave a comment or contact me with questions.

 

 

Lending Acronyms We Should All Know

The world is full of acronyms that we all know and many more that we don’t.   Banking might be the worst acronym culprit besides teenagers texting their friends. Acronyms like RESPA, FDIC, CD, HELOC, and about 8 million others, LOL. Most of them are not important to your everyday life, but several are very important in terms of getting a loan approval. Here are 3 acronyms to keep in mind…

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DTI (Debt to Income) is calculated as a percentage and is the total of all your monthly debt divided by your total monthly income before taxes.   For example, if your total monthly debt is $4000 (house payment, car payment, credit cards) and your total monthly income before taxes is $9000 the your DTI would be $4000/$9000 = 44% DTI. Every different loan product has a DTI requirement. A conventional mortgage will often have a DTI requirement of 43%, which means including the new loan you are applying for, your DTI can’t be above 43%. A home equity line may be 50%. Different institutions may have different requirements, but generally they are pretty close. FYI… you don’t include things like cable bill and groceries into your DTI.

LTV (Loan to Value) is calculated as the amount of the mortgage lien divided by the appraised value of the property, expressed as a percentage.  On most mortgages the max LTV the lender will allow is 80%. In other words, you have to bring 20% of the value of the home to the deal as a down payment.   So if you take a loan on the home for $750,000 and the house is worth $950,000 then 750/950 = 79% LTV. This would be within the guidelines. There are ways to bring less to the table than 20%, but we will save that for another blog.

FICO (Fair Isaac and Company) produces the most commonly used consumer credit scores that financial institutions use in making lending decisions. I discussed FICO in an earlier blog, but this is one of the most critical of the 3 that I have discussed in getting a loan approval. Often if your credit is poor or below requirement then it is an automatic decline regardless of how much money you make or how large your down payment is.

These are the big 3 in consumer credit decision making by most lenders. This is a good framework to keep in mind if you are in the market to potentially purchase a home or try and open a Home Equity Line of Credit. If you have further questions on these requirements, I would recommend speaking to a lender you trust.

Please leave a comment or contact me with questions.